4. Chairman's Statement

COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

1. Company Proﬁ le

China Oilfi eld Services Limited (the “Company” or “COSL”) is the leading integrated oilfi eld services provider in the off shore China market. Its services cover each phase of off shore oil and gas exploration, development and production. Its four core business segments are geophysical services, drilling services, well services, marine support and transportation services. COSL has listed its H shares on the Main Board of the Stock Exchange of Hong Kong Limited (“HKSE”) since 20 November 2002 under the ticker 2883. Since 26 March 2004, COSL’s stocks can be traded by means of Level I unlisted American Depositary Receipts at OTC (over-the-counter) market in the United States. Th e ticker symbol is CHOLY. COSL has listed its A shares on Shanghai Stock Exchange (“SSE”) under the ticker 601808 since 28 September 2007.

COSL possesses the largest fl eet of off shore oilfi eld services facilities in China. As at 31 December 2009, COSL operated and managed 27 drilling rigs (of which 23 are jack-up drilling rigs (one leased) and 4 are semi-submersible drilling rigs, (one managed)), 2 accommodation rigs, 4 module rigs and 6 land drilling rigs. In addition, COSL also owns and operates the largest and most diverse fl eets in off shore China, including 80 working vessels, 3 oil tankers, 5 chemical carriers, 8 seismic vessels, 4 surveying vessels, and a vast array of modern facilities and equipment for logging, drilling fl uids, directional drilling, cementing and well work-over services, including FCT (Formation Characteristic Tool), FET (Formation Evaluation Tool), LWD (Logging-While-Drilling) and ERSC (ELIS Rotary Sidewall Coring Tool), etc.

As the largest listed off shore oilfi eld services company in China, COSL not only provides services of single operations for the customers, but also off ers integrated package and turnkey services; COSL’s business activities are conducted not only in off shore China, but also extended to diff erent regions of the world including North and South America, the Middle East, Africa, Europe, South East Asia and Australia. COSL and its employees are dedicated to provide premier quality services, while adhering to the highest health, safety and environmental standards. In 2009, COSL’s SMS (Safe Management System) complied with the ISMC (International Safety Management Code), and was granted an annual certifi cate of DOC (Document of Compliance) approved by Maritime Safety Administration of the People’s Republic of China. In addition, COSL maintained the QHSE (Quality, Health, Safety and Environment) management system certifi cates issued by DNV (Det Norske Veritas) through the annual review in compliance with ISO9001, ISO14001 and OHSAS18001 standards.

With the drive of “ALWAYS DO BETTER”, COSL will endeavor to provide domestic and international clients with safe, quality, productive and environmental protection services. COSL commits itself to realize win-win situation for shareholders, clients, employees and partners. It is steadily making headway toward being one of the world top class oilﬁ eld services companies.

Th e Board of Directors (the “Board”), Supervisory Committee, and the directors, supervisors and senior management of China Oilfi eld Services Limited (the “Company”) confi rmed that there are no material omissions and misrepresentations or serious misleading statements in this annual report and accept join and several responsibility for the truthfulness, accuracy and completeness of the contents of the report. All directors attended the Board of Directors’ meeting. Ernst & Young Hua Ming and Ernst & Young have given unqualifi ed opinions on the 2009 fi nancial statements prepared under the Accounting Standards for Business Enterprises, or Chinese Accounting Standards (“CAS”) and the Hong Kong Financial Reporting Standards (“HKFRS”). Mr. Liu Jian, Chief Executive Offi cer, Mr. Zhong Hua, EVP & CFO, and Mr. Liu Zhenyu, General Manager of Accounting Department, have declared that they assure for the truthfulness, accuracy and completeness of the fi nancial statements in the Annual Report 2009.

Contents

1. Company Profi le 2. Principal Financial Data and Financial Indicators...... 1 3. Changes in Share Capital and Particulars of Shareholders ...... 3 4. Chairman’s Statement ...... 8 5. Chief Executive Offi cer’s Report ...... 14 6. Management Discussion & Analysis ...... 20 7. Corporate Governance ...... 41 8. Summary of General Meetings ...... 52 9. Social Responsibility Report ...... 54 10. Directors, Supervisors, Senior Management & Employees...... 61 11. Report of the Directors...... 69 12. Supervisory Committee Report...... 82 13. Signifi cant Events ...... 84 14. Auditors’ Report and Financial Statements Prepared in Accordance with Accounting Standards for Business Enterprises ...... 93 15. Auditors’ Report and Financial Statements Prepared in Accordance with Hong Kong Financial Reporting Standards ...... 201 16. Company Information ...... 275 17. Documents for Inspection ...... 276 18. Glossary ...... 277 CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

2. Principal Financial Data and Financial Indicators Financial data prepared in accordance with CAS

1. Principal Financial Data for the Year 2009 (Consolidated)

Unit: Million Currency: RMB

Item amount

Profi t from operations 4,166.4 Profi t for the year 3,759.6 Net profi t attributable to owners of the Parent 3,135.3 Net profi t excluding non-recurring gain and loss for the year attributable to owners of the Parent 3,389.2 Net cash fl ow from operating activities 5,604.9

2. Principal Accounting Data and Financial Highlights for the Latest 3 Years (Consolidated)

Unit: Million Currency: RMB

Increase/ Item 2009 2008 Decrease (%) 2007

Revenue 18,345.4 12,430.3 47.6 9,241.9 Profi t for the year 3,759.6 3,307.3 13.7 2,866.6 Net profi t attributable to owners of the Parent 3,135.3 3,102.2 1.1 2,237.6 Net profi t excluding non-recurring gain and loss for the year attributable to owners of the Parent 3,389.2 3,334.1 1.7 2,232.4 Basic earnings per share (RMB Yuan) 0.70 0.69 1.4 0.54 Diluted earnings per share (RMB Yuan) 0.70 0.69 1.4 0.54 Basic earnings per share aft er deduction of non-recurring gain and loss (RMB Yuan) 0.75 0.74 1.4 0.54 Fully diluted net assets earnings ratio (%) 14.06 15.67 (1.61 bp) 12.99 Weighted average net assets earnings ratio (%) 14.89 16.76 (1.87 bp) 19.86 Ratio of fully diluted net assets earnings aft er deduction of non-recurring gain and loss (%) 15.19 16.84 (1.65 bp) 12.96 Ratio of weighted average net assets earnings aft er deduction of non-recurring gain and loss (%) 16.10 18.02 (1.92 bp) 19.81 Net cash fl ow from operating activities 5,604.9 4,036.7 38.8 2,964.3 Net cash fl ow from operating activities per share (RMB Yuan) 1.25 0.90 38.9 0.72

Increase/ At the end of 2009 At the end of 2008 Decrease (%) At the end of 2007

Total assets 60,933.3 56,272.9 8.3 23,089.1 Shareholders’ equity 22,305.6 19,797.8 12.7 17,225.0 Net assets per share attributable to owners of the Parent (RMB Yuan) 4.96 4.40 12.7 4.17

Annual Report 2009 1 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

3. Items and amounts net of non-recurring gain and loss (Consolidated)

Unit: Yuan Currency: RMB

2009 Items of non-recurring gain and loss Income/(Loss)

Loss on disposal of non-current assets (19,017,422) Subsidy income 6,489,526 Loss on swap and forward exchange rate contract 49,298,437 Fees received from non-ﬁ nancial entities for funds occupied 1,355,275 Write back of provision on receivables tested individually 48,723,772 Net amounts of other non-operating income/loss (394,242,858)

Total of non-recurring gain and loss (307,393,270)

Tax eﬀ ect 53,503,756

Net amounts aﬀ ecting under non-recurring gain and loss (253,889,514)

4. Th e Statement of Diff erences between Domestic and Overseas Accounting Standards (Consolidated) Th e Directors confi rmed that when preparing the consolidated fi nancial statements of the Group (the Company and its subsidiaries) for the year ended 2009 and 2008, there were no substantial diff erences between the accounting policies adopted in the fi nancial statements prepared in accordance with CAS issued by the Ministry of Finance in February 2006 and HKFRS fi nancial statements of the Group for the corresponding periods. As such, for both 2008 and 2009, there were no substantial diff erences between the net profi t or net assets reported in the Group’s fi nancial statements prepared under CAS and those prepared under HKFRS, and hence, no reconciliations were required.

2 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

3. Changes in Share Capital and Particulars of Shareholders (I) Changes in Share Capital 1. Table of Changes in Shares During the reporting period, there was no change in the total number of shares and the share structure of the Company.

Disclosure of Other Information Deemed Necessary by the Company or Required by the Securities Regulatory Body

Th e total share capital of the Company increased to 4,495,320,000 shares upon listing of the A shares in 2007, among which, China National Oﬀ shore Oil Corporation held 2,410,468,000 shares, representing approximately 53.63% of the Company’s total issued share capital; National Council for Social Security Fund held 50,000,000 shares, representing approximately 1.11% of the Company’s total issued share capital; public investors held 2,034,852,000 shares, representing approximately 45.26% of the Company’s total issued share capital, and shareholders of overseas listed foreign-funded shares ( “H shares”) held 1,534,852,000 shares, representing approximately 34.14% of the Company’s total issued share capital and A share shareholders held 500,000,000 shares, representing approximately 11.12% of the Company’s total issued share capital.

2. Table of Changes in Restricted Shares Unit: share

Number of restricted Number of shares Increase/(decrease) Number of shares at the released from in the number restricted beginning restrictions on sale of restricted shares shares at the Reasons for Names of shareholders of the year during the year during the year end of the year restrictions on sale Releasing date

Transferred Holding Account – – 50,000,000 50,000,000 State-owned shares 28 September 2013 No.1 of National Council transferred to for Social Security Fund National Council for Social Security Fund CNOOC 2,460,468,000 – (50,000,000) 2,410,468,000 Th e commitment of 28 September 2010 controlling shareholder made during the IPO of A Shares of the Company

Total 2,460,468,000 – – 2,460,468,000 – –

Annual Report 2009 3 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

3. Details of Securities Issuance and Initial Public Oﬀ ering (IPO) Details of securities issuance in the last 3 years

Unit: share Currency: RMB

Types of shares and Issue price Issue Date of Total number of Expiry date debt securities Date of issue (RMB) quantity IPO tradable shares of transaction

A shares 20 September 13.48 500,000,000 shares 28 September 500,000,000 – 2007 2007 Corporate bonds 14 May 100 RMB1,500,000,000 – – 11 May 2007 2022

• Th e Company has been approved by the China Securities Regulatory Commission pursuant to Document: Zheng Jian FaXing Zi [2007] No.284 to make an initial public oﬀ ering of not more than 820,000,000 A shares. Th e Company issued 500,000,000 A shares based on market demand. Such shares received approval from the Shanghai Stock Exchange with Document: Shang Zheng Shang Zi [2007] No.181 and listed on the Shanghai Stock Exchange on 28 September 2007.

• On 14 May 2007, COSL issued corporate bonds of RMB1,500,000,000 with annual rate of 4.48% at par; the term of the corporate bonds was 15 years from 14 May 2007 to 13 May 2022; Th e corporate bonds were guaranteed by China Construction Bank Beijing Branch under an irrevocable and unconditional guarantee granted by the China Construction Bank Corporation, and issued to institutional investors in the People’s Republic of China through issuance network set up by syndicate members.

4. Changes in the Total Number of the Company’s Shares and the Shares Structure During the reporting period, there was no change in the total number of issued shares and the share structure of the Company.

5. Employees’ shares As at the end of the reporting period, there was no employee share.

4 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(II) Shareholders I. Number of Shareholders and Particulars of Shareholding As at 31 December 2009, number of shareholders and particulars of shareholding were as follows:

Number of shareholders at the end of the reporting period

Unit: share

A shares H shares

172,735 260

Particulars of shareholding of the Top 10 Shareholders

Increase/Decrease Number of shares Number of shares Shareholding Total number during the held subject to pledged or Name of shareholder Nature of shareholder percentage (%) of shares held reporting period restrictions on sales locked up

China National Oﬀ shore Oil Corporation State-owned 53.63 2,410,468,000 (50,000,000) 2,410,468,000 – Hong Kong Securities Clearing Company Nominees Limited Others 34.07 1,531,373,899 (410,000) – – Transferred Holding Account No.1 of National Council for Social Security Fund State-owned 1.11 50,000,000 50,000,000 50,000,000 – Great Wall Brand Prime Stock Securities Investment Fund Others 0.39 17,478,844 – – – Yifangda Value Growth Mixed Securities Investment Fund Others 0.18 8,005,861 – – – Franklin Guohai Potential Combination Equity-type Securities Investment Fund Others 0.15 6,821,228 – – – Wu Xiangfen Others 0.14 6,344,533 – – – Hua Xia SSE-SZSE 300 Index Security Investment Fund Others 0.10 4,367,710 – – – Invesco Great Wall Selected Blue Chip Stock Fund Others 0.09 4,062,799 – – – Harvest SSE-SZSE 300 Index Security Investment Fund Others 0.09 3,853,076 – – –

Particulars of Shareholding of the Top 10 Shareholders Not Subject to Restrictions on Sales

Shares not subject Name of shareholder to restrictions on sales Type of share

Hong Kong Securities Clearing Company Nominees Limited 1,531,373,899 H shares Great Wall Brand Prime Stock Securities Investment Fund 17,478,844 A shares Yifangda Value Growth Mixed Securities Investment Fund 8,005,861 A shares Franklin Guohai Potential Combination Equity-type Securities Investment Fund 6,821,228 A shares Wu Xiangfen 6,344,533 A shares Hua Xia SSE-SZSE 300 Index Security Investment Fund 4,367,710 A shares Invesco Great Wall Selected Blue Chip Stock Fund 4,062,799 A shares Harvest SSE-SZSE 300 Index Security Investment Fund 3,853,076 A shares Wang Hua 3,467,642 A shares Tong Zhi Securities Investment Fund 3,278,778 A shares

Annual Report 2009 5 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Remarks

1) Shares held by Hong Kong Securities Clearing Company (HKSCC) Nominees Limited were the sum of H-shares (by agent) traded in the trading platform of HKSCC Nominees Limited and in the accounts of H-share shareholders.

2) Shares held by shareholders with shareholdings of more than 5% (including 5%) during the reporting period were not pledged nor locked up.

3) To the knowledge of the Company, there were no connected relationships or concerted actions among the above top 10 shareholders, the top 10 shareholders not subject to restrictions on sales or between the above top 10 shareholders and top 10 shareholders not subject to restrictions on sales.

Particulars of Shareholding of the Top 10 Shareholders and Other Shareholders Subject to Restrictions on Sales

Unit: share

Particulars of tradable shares subject to restrictions

Name of shareholder subject Shares subject Date on which shares Number of newly Restrictions No to restrictions on sales to restrictions on sales become tradeable increased tradeable shares on sales

1 China National Oﬀ shore 2,410,468,000 28 September 2010 – 36 months Oil Corporation 2 Transferred Holding Account No.1 50,000,000 28 September 2013 – 3-year extension of National Council for based on original Social Security Fund moratorium for state-owned shareholders 3 Chengyu Fu 20,000 N/A N/A during term of directors

Information of Shareholders of H Shares Disclosed according to Securities and Future Ordinance

Number of Percentage Capacity of interest shares in interest (H) Name of shareholders interests held held (shares) of COSL(%)

JPMorgan Chase & Co. Interest in controlled corporation 215,427,976 (L) 14.04 (L) 527,000 (S) 0.03 (S) 90,101,906 (P) 5.87 (P) Commonwealth Bank of Australia Interest in controlled corporation 89,886,000 (L) 5.86 (L) Morgan Stanley Interest in controlled corporation 78,043,833 (L) 5.08 (L) 1,284,931 (S) 0.08 (S) Mirae Asset Global Investments Direct beneﬁ cial owner 77,265,573 (L) 5.03 (L) (Hong Kong) Limited

Note:

(a) “L” means long position

(b) “S” means short position

6 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

II. Brief Introduction on the Controlling Shareholder and the Beneﬁ cial Controller (1) Th e controlling shareholder and the beneﬁ cial controller

• Name of Company: China National Oﬀ shore Oil Corporation (“CNOOC”)

• Corporate Representive: Fu Chengyu

• Establishment Date: 15 February 1982

• Registered Capital: RMB94,931,614,000

• Main business of operations or management activities: CNOOC was entitled to exploitation of off shore petroleum resources in cooperation with foreign enterprises in China and franchise business of natural gas resources pursuant to Regulations of the People’s Republic of China on the Exploitation of Off shore Petroleum Resources in Cooperation with Foreign Enterprises. Th e main business involved in organization for exploration, development, production and refi ning of off shore oil and natural gas, processing and utilization of petrochemical and gas; sales of oil, natural gas, oil and gas processing products, petrochemical products and their production, provision of services for users with oil, exploration of natural gas development, production and sales; import and export of three types commodities approved; the above import and export for related units and the agents; technology export of the system; crude oil imports; contractor for Sino-foreign joint ventures, co-production; countertrade and re-exports.

(2) Changes in the controlling shareholder and the beneﬁ cial controller

During the reporting period, there was no change in the controlling shareholder and the beneﬁ cial controller of the Company.

(3) Diagram of the equity and controlling relationship between the Company and its ultimate controlling shareholder

Stated-owned Assets Supervision and Administration Commission of the State Council

100%

China National Oﬀ shore Oil Corporation

53.63%

China Oilﬁ eld Services Limited

III. Other Institutional Shareholders Holding 10% or More of the Shares

As at the end of the reporting period, there is no legal person shareholder of the Company who holds more than 10% of the shares.

Annual Report 2009 7 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Fu Chengyu Chairman

4. Chairman’s Statement

Dear Shareholders,

Th e past 2009 was merely a year in the history but it was also an extraordinary year to all of us. Th e global fi nancial crisis signifi cantly impacted the oilfi eld services industry, which posed an unprecedented challenge to the Company. During the year, staying realistic and pragmatic and forging ahead with determination, we endeavored to develop domestic and foreign markets while ensuring the high utilization rate of the major equipment. Th e Company paid attention to the implementation of QHSE management system and its work on quality, health, safety and environmental protection kept improving. Th e enhanced cost management and reduced cost led to a steady growth in economic effi ciency. Besides, the gradual progress of integrating CDE (COSL Drilling Europe AS) accomplished a staged achievement. All the above facilitated the development of the Company to a new phase.

Operating Result

In 2009, under the backdrop of fi nancial crisis, the Company revealed strong risk resistance capacity. Th e international market demand for upstream oilfi eld services declined sharply. However, benefi ted from the continuous momentum of the off shore exploration and development of domestic market in China, the Company developed steadily. While proactively developing foreign markets, the Company endeavored to develop the domestic market, so as to maintain the leading position of the Company in off shore oilfi eld services market within China and to ensure a highly effi cient operation of large scale equipment. Under the Hong Kong Financial Reporting Standards, at the end of 2009, the total assets of the Company amounted to approximately RMB60,777 million, representing an 8.1% increase compared with that at the beginning of the year; our revenue amounted to RMB17,879 million, representing an 47.2 % increase compared with that for the same period of last year; our profi t before tax amounted to RMB3,760 million, representing an increase of 13.7% compared with that for the same period of last year; our net profi t for the year amounted to RMB3,135 million, representing an increase of 1.1% compared with that for the same period of last year and basic earnings per share amounted to RMB0.70, representing an increase of 1.4% compared with that for the same period of last year.

8 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Consolidating CDE with high eﬃ ciency and satisfactory result

Th e Company moved forward steadily within the exploration. Aft er more than 1 year of integration, we achieved initial success by accomplishing smooth transition over the control of CDE, which ensured the operation generally remained stable. We optimized the management system of CDE and made it in line with the management system of the Group. We completed the debt restructuring of CDE, minimized the operational risk and reduced the cost of debt. All the above secured the eﬀ ective operation of our acquired assets. With the contribution from CDE’s drilling rigs, the revenue from drilling services segment increased by 67.1% and created a synergy to marine support and transportation services segment and well services segment. We have gained experience and trained up our team through the acquisition and integration of CDE, which lays a solid foundation for our rapid growth.

Board of Directors and Senior Management

In 2009, Mr. Yuan Guangyu and Mr. Andrew Y. Yan resigned as the Directors of the Company due to change of job and expired term of oﬃ ce respectively while the terms of Mr. Li Yong and I expired during the year. On 3 June 2009, the Company convened the 2008 Annual General Meeting, at which Mr. Liu Jian and Mr. Tsui Yiu Wa were elected as new members to the Board and Mr. Li Yong and I renewed our terms of oﬃ ce through the election. On 4 June 2009, Mr. Liu Jian and I were elected as the Vice-Chairman and Chairman of the Company respectively through a voting by facsimile. Th e Board would like to express our sincere gratitude to Mr. Yuan and Mr. Yan for their contribution to the Company.

In 2009, under the leadership of CEO Liu Jian, the senior management team of the Group fi rmly put the decisions of the Board into practice, explored each business segment and responded confi dently to the market challenges, in order to bring a higher value to shareholders. I am pleased to see that we have such professional, work-respecting and enthusiastic management team and I certainly believe that with our concerted eff orts, the Company will defi nitely stride towards its development objectives.

Fulﬁ llment of Social Responsibilities

It is our longstanding belief to earnestly carry out our corporate social responsibility in order to realize a win-win situation with coexistence and collaborative development for the corporate and stakeholders. In 2009, the SMS/QHSE system was implemented in full scale for management in the safety and environmental protection domains. We paid attention to environmental protection while ensuring the safety of various production operations through which we accomplished the annual management objectives of QHSE. Th e Company always follow the people-oriented ideology to respect and protect employees’ legitimate rights, creates good conditions for training and growth, adopt proactive measures to protect the health of employees in order to achieve a harmonious situation for growth of the Company and employees. We showed concern for public aﬀ airs, participated in poverty relief work, donated funds and provided scholarship and were also awarded the “2009 Chinese Companies Performing Social Responsibilities – Special Prize”.

Prospect

Looking forward into 2010, it will be the critical period for the world economy to stabilize and rebound. Chinese economy would strengthen its uprising trend. However, various unfavorable factors still exist and it will be a slow and complicated process for full recovery. For the oilfi eld services industry, the business environment is still very harsh. However, opportunities come along with challenges. On one hand, with the increasing demand for energy in domestic market, the off shore operation volume in China will keep rising in the short term. It will defi nitely bring the Company with a development opportunity. On the other hand, the fi erce competition of international oilfi eld services

Annual Report 2009 9 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

will continue in the short term. Although there is a recovery in the global demand for large equipment, yet it remains at a lower level. In 2010, the Company will proactively respond to the opportunities and challenges coming from the complicated and harsh macroeconomic environment.

1. Keeping consolidating the domestic market while actively developing international markets

We will consolidate our leading position in the off shore oilfi eld services in market in China, including drilling services, well services, marine support and transportation services and geophysical services as well as maintain our competitive edge. We are customer- demand-oriented, not only fulfi lling the requirement of existing customers, but also actively seeking potential customers. By proactively leading the market, we provide quality technique, operation and services for improving the production of oilfi eld and developing oil recovery techniques. Besides, the potential market of simple and low-cost technique for drilling and completion fl uids and fracing, new method of producing thick oil and development of three-low reserves and marginal small oilfi eld will be the focus and development direction of the well services for the Company. We need to have an overall planning and layout on the international market. According to the market situation and changes in demand, we need to categorize our customers for management purposes and to focus on equipment and technique. Our focus should be placed on the markets with competitive edge so as to enlarge our market share internationally.

2. Enhancing risk management

Th e Company currently possesses a large-scale capital investments and a lot of construction projects. Th erefore, it has to enhance its management on the scale, direction and timing of investment according to the market demand and the Company’s strategy and allocate resources reasonably to establish a priority ranking system for capital investment construction projects, which allocates the recourses used in accordance to their planning. Meanwhile, we will also strengthen our control over the funds, budget, progress and quality of the construction projects, to further increase our management standard. Besides, we will further optimize the operation model and the structure of foreign entities as well as strengthen the risk mitigation of overseas branches and subsidiaries.

3. Emphasizing on fundamentals and promoting balanced development

Successfully implementing the management system and cost controls

In recent years, the Company possesses established a comprehensive management system for its costs and expenses, which has strengthened its cost management and laid a solid foundation on refi ned management which we did achieve a satisfactory result. Strengthening the implementation of management system on cost and expenses is our next step. On one hand, we need to break down the cost budgeting into details and enhance its controlling eff ect, through which a link between lowering cost and reviewing performance can be established and facilitates the refi ned management. On the other hand, we need to strengthen the management on equipment construction, procurement and external resources to establish certain controls and optimizing measures which aligns with our production and management features.

Enhancing the technology development

We have learnt from our past experience that developments can hardly be achieved without technologies, and sustainable development can hardly be attained without proprietorship technologies. Advanced technologies have been the keys in solving problems in oilfi eld exploration, development and production; they are fundamental in increasing income and reducing cost. In 2010, we will further increase investment in technology, enhance management of R&D projects and strengthen technology driving forces. Technology development should have more perspective and focuses on the technological diffi culties troubling the operation. Our fi rst priority is to satisfy the demand of our customers. We will focus on the related technological development in well services segment and improve our technology services.

10 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Continues integration of CDE

Integration is the critical factor for the success in an acquisition. Th e benefi ts and synergies of an acquisition only come with perfect integration. Despite the staged achievement of our integration eff orts, there is still lot of diffi culties and challenges in culture integration. All parties will work together and commit themselves to their work to realize the expectation of the acquisition.

Strengthening ability, preparing for deep water operation

Th e Company has focused on construction of deep-water exploration and development capacity by enhancing and gaining more experience on its operation equipment, technology and human resources. In 2010, the Company will speed up the construction projects of the 2500-feet semi-submersible drilling rig, the deep water survey vessel and large AHTS vessels and seize the opportunities of deep water operation to gain experience, which help us prepare well for deep water operation.

Lastly, I sincerely express my gratitude to our Board members for their contribution, to our shareholders for their support and to our management and staff for their diligence. I believe that in 2010, under the leadership of the Board and the eff ort of the management and staff s of the Company, COSL will fi rmly continue the scientifi c development concept and bravely face the challenges. With achieving a breakthrough in each business segment, we will stride towards the objective of becoming an internationally leading oilfi eld services company and reward our shareholders, contribute to the society and benefi t our staff s with outstanding operating results.

Fu Chengyu Chairman 30 March 2010

Annual Report 2009 11 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Integrated Oilﬁ eld Services Supplier

Being a comprehensive solution provider of integrated oilﬁ eld services, COSL has core services such as Drilling Services, Well Services, Marine Support and Transportation Services and Geophysical Services, which cover each phase of oil and gas exploration, development and production.

12 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Annual Report 2009 13 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORINDICATORSS PARTICULARS OF SHAREHOLDERS

Liu Jian Chief Executive Offi cer

5. Chief Executive Oﬃ cer’s Report

Dear Shareholders,

Looking back to the last year, with the global impact of the fi nancial crisis, the market demand for oilfi eld services dropped sharply, prices declined and the intensity of competition grew. Th e Company was faced with unprecedented challenges. Under the challenge of fi nancial crisis and market downturn, the senior management of the Company and all our staff held together and worked in a down-to-earth manner. Driven by the four major strategies, we endeavored to maintain our market share within China while actively developing overseas markets, advancing the integration of CDE (COSL Drilling Europe AS), developing internal ability, reducing cost and enhancing effi ciency in order to raise our economic benefi ts as much as possible. Th e Company has accomplished its objectives in each aspect.

Operating result reached a new level In 2009, despite the industry downturn, our drilling services business, well services business and marine support and transportation services business kept a rapid growth. Th e additional 8 drilling rigs of CDE helped the Group overcome the unfavorable condition caused by the sharp drop of international market demand. By working hard to expand the market, drilling rigs maintained a high utilization rate, thus the turnover from drilling services segment amounted to RMB9,891.8 million, 67.1% higher as compared with last year. Benefi ted from the success in drilling services segment, well services segment and marine support and transportation services segment also achieved satisfactory results. Th e turnover from well services segment amounted to RMB4,416.7 million, 61.6% higher as compared with last year whereas the turnover from marine support and transportation services segment amounted to RMB2,171.3 million, 34.5% higher as compared with last year. In 2009, the turnover from geophysical services segment, badly aff ected by the reduce in exploration and development expenses, amounted to RMB1,398.9 million, 25.5% lower as compared with last year. Th e Company achieved revenue of RMB17,879 million, 47.2% higher as compared with last year; an operating profi t of RMB4,468 million, 23.1% higher as compared with last year; and a net profi t of RMB3,135 million, 1.1% higher as compared with last year.

14 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Keep promoting safety control with a further improvement in safety

In 2009, steady progress was made in the optimization and effective operation of QHSE management system. We enhanced its implementation to promote the Company as a resources saving and environmental friendly enterprise while ensuring a safety operation. As for safety, we kept improving our safety management system by thoroughly assessing the hidden risk and establishing protective measures, which eﬀ ectively prevented us from major liability accidents and demonstrated that our safety management standard had improved continuously. As for environmental protection, the Company included environmental protection in the QHSE system in accordance with ISO14001 Environmental Management Standards and obtained a third-party certiﬁ cate. Meanwhile, each operating unit has established safety and antipollution management system in accordance with the International Management Code for the Safe Operation and for Pollution Prevention and earnestly implemented various environmental protection measures by conducting trainings. In 2009, the Company has not caused any pollution and achieved its QHSE management objective.

A staged result achieved in the integration of CDE In 2009, we made steady progress in the integration of CDE. As for the organizational structure, we closed the offi ce in Oslo and integrated the two management teams coming from the Oslo offi ce and Stavanger offi ce. Th en, CDPL (COSL Drilling Pan-Pacifi c Ltd) was established to replace Premium Drilling (Premium Drilling AS), through which streamlined the organizational structure, simplifi ed management procedures and higher operation effi ciency were achieved. Th is ensured the high effi ciency of all acquired assets, signifi cantly reduced management costs and operating expenses and promoted the brand of COSL to the international market. As for the fi nancial aspect, fi nancial and treasury management system were re-optimized systematically and synchronized with that of headquarters. Th e timely debt restructuring of CDE, which transferred the short-term loans into long-term loans with lower interest rates, reduced the pressure of repaying short-term loans and eliminated the operational risk. As for staff integration, the foreign staff of CDE and CDPL got a better understanding of the corporate culture and philosophy of COSL via training, work exchange and team work, through which their team spirit has been improved and it promoted culture integration and trained up our management personnel and operation team with international horizon as well as broaden their experience. As for the construction of 3 semi-submersible drilling rigs, with eff ective communication between the senior management of COSL and the constructors, we gradually improved our management on the project, avoided from commercial disputes and technical risks and achieved a better resources allocation on the construction, all of which contributed to a satisfactory construction progress. Th e Company will continue to coordinate the work, speed up the constructions of semi-submersible drilling rigs and continue to carry out the culture integration, in order to lay a solid foundation for the better future development of CDE.

Keep strengthening the cost management and working on refi ned management Th e Company has a competitive edge on cost, which is a vital strategy we have been carrying through. Th e Company has controlled our costs through excellent management and technology innovation for years. In 2009, cost management was especially important under the circumstance of fi nancial crisis. Th e Company endeavored to ensure its quality, and eff ectively control costs through various measures such as improving management, enhancing the implementation of systems, seeking opportunities and economizing materials. According to our own business characteristics, the Company has formulated various practicable management methods and measures to cut down costs and administrative expenses with satisfactory result. Moreover, to further exploit its potential, the Company established a cost analysis team, which is headed by the Chief Economist, to help all departments further analyze their cost components and establish various measures to cut down the cost and raise the effi ciency from the source. Aft er analyzing the cost, all departments will review their operation fl ow to further break down their management cost and optimize the cost elements, through which contributes to maintain the growth of the Company and promote its development while laying a foundation for the continuous development of refi ned management.

Annual Report 2009 15 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Stable growth in overseas operation and continuous improvement in internationalization In 2009, under the backdrop of shrinking market for oilfi eld services and the declining services price, the Company spared no eff ort to face the challenges. While maintaining our leading position in the off shore oilfi eld services market in China, we actively developed overseas markets. On the basis of consolidating the existing markets, the Company promptly seized the market opportunities to successfully introduce its well workover barges and cementing business in Indonesia and reinforce its logging business in United Arab Emirates. Th e momentum of overseas market remained stable. In 2009, the overseas operation of the Company covered the Asian-pacifi c region, North America, northern Africa and northern Europe, with a sales revenue of RMB4.99 billion, 63.9% higher than that as compared with last year.

Keep strengthening the management on equipment construction 2009 was a peak year for constructing and commencing the operation of the Company’s large equipment. Th e Company adopted proactive measures to deal with the negative impact caused by the fi nancial crisis to the capital investment, established a priority ranking system for capital investment projects, allocated resources reasonably, determined the scale of investment and investment direction and match the Company’s strategies with the market demand to the largest extent. Meanwhile, we strengthened the management on equipment construction and identifi ed the issues timely and eff ectively dealt with them, which helped to plug the management loopholes, optimized the monitoring mechanism and further specifi cally focused on the management of the signifi cant changes and critical details of the projects, thus ensuring the implementation of the budget plans of equipment construction projects and the quality of the equipment delivered. 4 jack-up drilling rigs (including 2 CDPL), 10 oilfi eld utility vessels and 3 well workover support barges commenced their operations during the year, together with 5 sets of ELIS, 4 MWD and 1 undersea cable fl eet.

Speed up the R&D with improvement in innovation ability In 2009, the Company kept increasing its input in R&D projects to support the signifi cant R&D projects. Among those projects, our measuring-while-drilling technique has completed the core part of LWD and a drilling fl eet with measuring-while-drilling technique has been constructed. Th e development project of off shore high precision seismic collection equipment has entered the engineering process. Rotational guiding technique and assessment technique of “Th ree Low Reservoir” also achieved a breakthrough. During the year, the Company obtained registration of 51 patents, 15 of which were invention patents.

Th e Company won in the very fi rst battle against the crisis during 2009 and successfully achieved its objectives. Looking forward into 2010, the development environment of oilfi eld services industry will still be harsh and complicated. Yet, I am totally confi dent of our development. Th e Company will continue to consolidate the domestic market, seize the market opportunities and fl exibly adjust the operating strategies. Besides, we will deepen the establishment of QHSE system, enhance the training and implementation of the safety and management system, strengthen the control over costs and risks and try to achieve refi ned management. Furthermore, the Company intends to commence perspective R&D projects, improve its innovation ability, and better its technical storage as well as its deep-water construction. Moreover, we will extend the integration of CDE, continuously raise the synergy and promote the culture integration. All of the above would facilitate a sustainable, safe and rapid development of our businesses, and allow the Company to stride towards the objective of being an internationally leading oilfi eld services company.

Liu Jian Vice Chairman and CEO 30 March 2010

16 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Annual Report 2009 17 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF DRILLINGSHAREHOLDERS SERVICES

Being a major drilling service provider in offshore China, as well as an important international drilling participant, we are capable of providing drilling services of up to 1,500 ft water depth and drilling depth of 30,000 ft.

2009 Drilling Services Revenue Increased 67.1% to RMB9,891.8 MILLION

Water depth can be reached up to 1,500 FT

Oil well drilling depth can be reached up to 30,000 FT

18 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Annual Report 2009 19 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

LiL Yong President

6. MANAGEMENT DISCUSSION & ANALYSIS

Th e fi nancial data in the following discussion and analysis are extracted from the Group’s audited fi nancial statements prepared under HKFRS INDUSTRY REVIEW In 2009, the fi nancial crisis swept across the world, the investment in global oil and natural gas exploration experienced the fi rst reduction in 10 years. Th e survey results of the International Energy Agency (IEA) showed that the 2009 investment of the top 50 oil companies in the world decreased by 14% from 2008. Th e reduction in upstream investment aff ected the whole oilfi eld services sector. In 2009, the total global market value reduced by 16% and the overall global drilling rig market contract signing rate reduced by 9.1%, and the average day rate of drilling rigs reduced by 28.4% on a year-to-year basis. Due to the Chinese government’s active and eff ective fi scal stimulus policy and economic fi ne tuning measures, as well as the increased capital expenditure of the oil company in China off shore, the trend of off shore exploration and production in 2009 had not changed.

BUSINESS REVIEW Drilling Services Segment

COSL is the major supplier of China oﬀ shore drilling services, also an important participant of the international drilling services. We mainly provide services such as drilling, module rigs, land drilling rigs and drilling rigs management. As of the end of 2009, we operated and managed a total of 27 drilling rigs (of which 23 are jack-up drilling rigs (one leased), and 4 are semi-submersible drilling rigs (one managed)), 2 accommodation rigs, 4 module rigs and 6 land drilling rigs.

In 2009, demand for oilfi eld services in the global market declined signifi cantly. COSL sought for development in the crisis and seized favorable opportunities in domestic exploration and development. We have developed the overseas markets steadily and continued to solidify our leading position in the off shore drilling market in the PRC with increased market share. We have also proceeded with the integration of COSL Drilling Europe AS (“CDE”) steadily and maintained high utilization rate on our drilling equipment. In 2009, benefi ted from CDE’s highly eff ective operation and equipment usage, turnover of our drilling service operation recorded a signifi cant increase of 67.1% to RMB9,891.8 million.

20 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

As of the end of 2009, we had 12 drilling vessels operating in Bohai of China, 5 in South China Sea, 3 in overseas countries such as Saudi Arabia and Australia, etc, while 4 vessels were being mobilized to their new assignments destinations. At the same time, we also provided management services for 1 semi-submersible drilling rig for overseas customers. Besides, 2 newly built drilling vessels were on the last stage of pre-operation preparation, and were expected to start to provide drilling services for customers at the beginning of 2010. 2 accommodation rigs continued to provide the relevant services for customers in the North Sea. As for drilling equipment, we had altogether 4 module rigs working in the Mexican waters, 5 land drilling rigs working in Libya, 1 land drilling rig working in Xinjiang of China. Th e Group also had three 2,500 feet semi-submersible drilling rigs and four 200 feet jack-up drilling rigs under construction. It is expected that the service capability of the drilling business will be further enhanced once the construction of these facilities are completed.

2009 operation details of our jack-up and semi-submersible drilling rigs are as follows:

Increase/ Percentage 2009 2008 (Decrease) change

Operating days (day) 8,155 5,654 2,501 44.2% Jack-up drilling rigs 7,089 4,556 2,533 55.6% Semi-submersible drilling rigs 1,066 1,098 (32) (2.9%) Available day utilization rate 98.9% 100.0% (1.1%) Jack-up drilling rigs 98.7% 100.0% (1.3%) Semi-submersible drilling rigs 100.0% 100.0% 0.0% Calendar day utilization rate 95.0% 92.7% 2.3% Jack-up drilling rigs 94.7% 91.1% 3.6% Semi-submersible drilling rigs 97.4% 100.0% (2.6%)

Th e reasons for the increase by 2,533 days operation of jack-up rigs compared with the same period last year were that, ﬁ rstly, the operating days of CDE increased by 2,073 days. Th is is mainly because in the previous year, only the 4th quarter operation of CDE was consolidated, while this year the whole year’s operation was consolidated, also CDE had 2 jack-up rigs which commenced production such that the number of its jack-up rigs increased to 8 vessels from 6 vessels of the previous year. Secondly, the reduction in the number of days of repair and maintenance of the existing jack-up rigs of the Group (excluding CDE) (15 vessels) and the increased number of days of operation of COSL942 for the whole year had contributed to the increase of operating days of 460 days.

Th e operation of semi-submersible drilling rigs decreased by 32 days compared with the same period last year mainly because the number of days of repair and maintenance for the year increased by 29 days, plus there were 3 calendar days less than last year.

In 2009, the calendar day utilization rate of the drilling vessel team increased by 2.3% compared with the same period last year and reached 95.0% due to the reduction in the number of days of repair and maintenance.

In 2009 we continued to provide the services of 4 module rigs for the Mexican clients, which brought 1,423 days of operation for the whole year and the calendar day utilization rate reached 97.5%. As for the land drilling rigs, driven by the good operation of the drilling rigs last year, we delivered 2 additional land drilling rigs providing services to Libya clients this year. So far, the 6 land drilling equipment owned by the Group brought a total of 2,051 days of operation, and the calendar day utilization rate and available day utilization rate both reached 100.0%.

Annual Report 2009 21 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

WELL SERVICES Being the largest and most competent all rounded well services provider in offshore China, COSL can fulﬁ ll a chain of well services performances.

22 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Annual Report 2009 23 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Despite the tremendous pressure on the oilﬁ eld services sector in 2009 resulting from the global economic environment, the average day rate of drilling rigs of the Group still maintained at the same level compared with the same period last year and recorded a slight increase due to the day rate of CDE drilling rigs. Th e details are as follows:

Average day rate Increase/ Percentage (ten thousand US$/day) 2009 2008 (Decrease) change

Jack-up drilling rigs 12.0 11.6 0.4 3.4% Semi-submersible drilling rigs 18.8 17.9 0.9 5.0% Accommodation rigs 19.6 16.7 2.9 17.4% Average 13.4 12.9 0.5 3.9%

Note: 31 December 2009 US$/RMB exchange rate: 1:6.8282, 31 December 2008 US$/RMB exchange rate: 1:6.8346.

Well Services Segment

We possess over 30 years of experiences in off shore well services operation and over 20 years of experiences in onshore well services operation. Also, we are the main provider of China off shore well services together with the provision of on-shore well services. Our major clients for well services include large scale oil and gas companies in China (such as CNOOC and Petrochina etc) and oil and gas multinationals (such as BP, Shell, ConocoPhillips and Chevron etc). Th rough continuous input in technology research and development, advanced technological facilities and an excellent management team, we provide comprehensive professional well services to clients, including (but not limited to) logging, drilling & completion fl uids, directional drilling, cementing, well completion, well workover, oilfi eld production optimization etc.

In 2009, the cementing and well completion services had entered into the domestic onshore oilfi eld market, and the directional drilling project services had entered into the overseas market. Th e ELIS logging equipment that we developed were sold to external customers on a full set basis for the fi rst time. At the same time, we made some achievements in technological research and development and commercialization for well services. In 2009, the Cross Dipole Array Acoustic Tool logging equipment were offi cially included in the ELIS logging system, and successful off shore operation was achieved, symobolizing that the ELIS logging system had reached the international advanced standard. Aft er connected application with the ELIS system, the ERCT (Enhanced Reservior Characteristic Tester) further enhanced the service functions of the ELIS logging system. ERMI (Enhanced Resistivity Micro-Imager) logging equipment that we developed ourselves succeeded in the experimental well testing for electrical imaging tool in Liaohe oilfi eld, which fi lled up our gap of the logging technology in high-end electronic imaging.

In 2009, through continuous exploration of new markets, increase in the proportion of technological contents of our services and the rise in operation volume due to the addition of 5 new drilling rigs in China (COSLCraft /Boss/Seeker/Conﬁ dence/Superior), the well services segment recorded a turnover of RMB4,416.7 million, increased by RMB1,684.1 million from RMB2,732.6 million of the same period last year, representing an increase of 61.6%.

Marine Support and Transportation Services Segment

We possess and operate the largest and most comprehensive off shore utility transportation fl eet in China. As of 31 December 2009, the Group owned an aggregate of 80 utility vessels of various types, 3 oil tankers, 5 chemical carriers, which were mainly operated in off shore China. Th e off shore utility vessels provide services for off shore oil and natural gas fi elds exploration, development and production, and are responsible for supplies, cargoes and crew transportation and standby services in the sea, and provide moving and positioning for drilling platforms, towing and anchoring services for off shore vessels. Th e oil tankers are used for transporting crude oil and refi ned oil and gas products. Th e chemical carriers are used for carrying chemical products such as methanol.

24 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

In 2009, the marine support and transportation services segment maintained the leading position in oﬀ shore China and also actively explored new business areas. At the beginning of the year, we signed a contract with customer in relation to deep water drilling marine support services, marking the start of marine support services in the deep waters. Th ree workover support barges commenced operation and provided services to the client. Th is brought an important breakthrough in the overseas market and accumulated experience for the exploration and development of overseas market in the future.

In 2009, the Group had 10 utility vessels and 3 workover support barges joining the ﬂ eet, thus the ﬂ eet structure was further improved. At the same time, 8 utility vessels were scrapped due to old age. So far, the Group has 80 owned vessels, that means 5 more compared with the end of last year, including 49 standby vessels, 19 AHTS vessels, 5 platform supply vessels, 4 multi-purpose vessels and 3 workover support barges.

Th e operation of the Group’s owned vessels in 2009 was as follows:

Increase/ Percentage Operating days (day) 2009 2008 (Decrease) change

Standby vessels 16,433 13,048 3,385 25.9% AHTS vessels 6,787 7,186 (399) (5.6%) Platform supply vessels 1,759 1,864 (105) (5.6%) Multi-purpose vessels 1,949 1,528 421 27.6% Workover support barges 774 – 774 N/A

Total 27,702 23,626 4,076 17.3%

Th e operation of self-owned ﬂ eet increased by 4,076 days compared with the same period of last year mainly because there were 13 new utility vessels for the year which increased operation by 2,677 days and the operation of 8 utility vessels which commenced in the second half of last year increased by 2,579 days for the year. Th is year there were 8 utility vessels scrapped, reducing operation by 498 days. Th e operation of other vessels reduced by 682 days because of increase in days of repair and non-operational navigation. Since the operation rate of new vessels was not high in 2009, the calendar day utilization rate of the Group’s owned ﬂ eet was 93.4%, or a 1.4% decrease compared with the same period last year.

Th e total transportation volume of oil tankers and chemical carriers for the year increased due to the improvement of operation rate, of which, the transportation volume of oil tankers was 1.413 million tonnes, or an increase of 38.4% from 1.021 million tonnes from the same period of last year, the transportation volume of chemical carriers was 1.098 million tonnes, or an increase of 4.3% from 1.053 million tonnes from the same period of last year.

Driven by the improvement of operation capability of new equipment and active utilization of external resources, the marine support and transportation services segment achieved a turnover of RMB2,171.3 million, increased by RMB557.4 million from RMB1,613.9 million from the same period of last year, or an increase of 34.5%.

Geophysical Services Segment

We are a major supplier of China oﬀ shore geophysical services. At the same time we also provide services in other oﬀ shore regions, including South and North America, the Middle East, Africa and Europe. Our geophysical services are divided into two main categories: seismic services and surveying services. At present, we own 8 seismic vessels and 4 integrated marine surveying vessels.

In 2009, the turnover of the geophysical services of the Group amounted to RMB1,398.9 million. It decreased by RMB477.6 million from RMB1,876.5 million of the same period last year, representing a decrease of 25.5%. Th e main reason was that the operation volume reduced due to market changes.

Annual Report 2009 25 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

26 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

MARINE SUPPORT AND TRANSPORTATION SERVICES Owning and operating the largest and most comprehensive offshore utility ﬂ eets in China and currently has 80 utility vessels, 3 oil tankers and 5 chemical carriers.

Annual Report 2009 27 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS GEOPHYSICAL SERVICES

Being a major provider of geophysical services in offshore China, as well as an important participant in the global geophysical market, COSL currently own 8 seismic vessels and 4 integrated marine surveying vessels.

28 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Annual Report 2009 29 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Seismic Services

Due to the global fi nancial crisis, international oil prices stayed at a low level in 2009. Th e oil companies reduce their upstream exploration investment and the seismic data collection services under the geophysical services segment were the fi rst which suff ered. Th erefore, there was a certain degree of reduction of operation volume for the data collection and data processing businesses of the Group for the year. Th e details are as follows:

Increase/ Percentage Services 2009 2008 (Decrease) change

2D collection (km) 33,900 49,448 (15,548) (31.4%) 2D processing (km) 22,588 23,402 (814) (3.5%) 3D collection (km2) 10,394 13,592 (3,198) (23.5%) 3D processing (km2) 7,951 8,382 (431) (5.1%)

Th e operation volume of 2D collection business reduced by 15,548 km compared with the same period of last year, which was principally attributable to the reduction in demand in the market as well as the reduction in operation volume of BH518, NH502 by 16,693 km due to repair and upgrade enhancements. Th e operation volume of 3D collection business reduced by 3,198 km2 compared with the same period of last year. It was principally attributable to the the fact that COSL718 was aﬀ ected by the market environment and the overseas contracts were cancelled by oil companies (overseas operation were 2,302 km2 for the same period of last year). Also the operation volume was reduced by 2,215 km2 because of mooring for repair and maintenance. Besides, BH512 were under repair and maintenance at the beginning of the year, and it mainly carried out 2D data collection services this year such that the operation volume decreased by 559 km2 compared with the same period last year.

Th e operation volume of data processing services did not record a large decrease thanks to the stability in the domestic market, of which 2D data processing business only decreased by 3.5% and the 3D data processing business decreased by 5.1%.

Surveying Services

Th e 2009 surveying services recorded a revenue of RMB301.6 million, increased by RMB36.2 million compared with a revenue of RMB265.4 million from the same period last year, or an increase of 13.6%. Th e major reason was that this year we actively explored the markets and obtained the contract of deepwater surveying of Liwan.

Integrated Project Management

In 2009, the Group’s integrated services made a breakthrough amid the depression in the sector. Th e integrated services project is the ﬁ rst into overseas market, providing services such as drilling, logging, mud, and oil testing etc. COSL931 drilled the Lotus-1X Joint Exploration Well, and realized a revenue of RMB200 million. In 2009, the revenue of integrated project management of the Group reached RMB1.01 billion, increased by RMB320 million from the same period of last year, or an increase of 46.4%.

Overseas Business Expansion

In 2009, we continued to seek overseas cooperation opportunities actively while strengthening our market share in the domestic market at the same time. We maintained sustainable and steady growth momentum of overseas businesses. By the end of 2009, we had already operated over 30 overseas projects in 16 countries and regions around the world with an aggregate turnover of RMB4,989.0 million (including recognition of deferred income of RMB1,073.1 million), increased by RMB1,945.6 million from RMB3,043.4 million of the same period of last year, or an increase of 63.9%. Th e ratio of overseas revenue over the turnover of the Group amounted to 27.9%.

30 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

For the drilling segment, last year aft er we had completed the acquisition of CDE Group, our capability to provide services to overseas countries was further enhanced. Th is year, while we secured the smooth operation of the existing overseas projects – N6 Project operating in Australian waters, 4 module rigs operating in Mexico Gulf, 5 land drilling rigs in Libya, at the same time we signed a 3-year service contract for COSL Strike (jack-up rig) with a UAE client. Th e marine support and transportation services segment ﬁ rst entered the overseas market and provided the services of 3 workover support barges to Indonesian clients. In the well services segment, a 3-year logging services were provided by our ELIS logging system for a UAE client, whereas new operation contracts for cementing services in Indonesia were obtained. For the geophysical services segment, BH517 navigated to Indonesia to conduct 2D data collection services, while in the domain of data processing, a breakthrough was also obtained whereby we won a contract for data processing from a Congo client.

Technology and development

Th e technology-driven strategy is one of our 4 major strategies. We formulated long term technological development plan for the Group’s long term and quality development. In 2009, under the guidelines of the plan, fruity results were obtained in the application of our innovative technology. Successful off shore operation of Cross Dipole Array Acoustic Tool logging equipment was achieved, symbolizing that the ELIS logging system had reached the international advanced standard. Aft er connected application with the ELIS system, the ERCT (Enhanced Reservior Characteristic Tester) further enhanced the service functions of the ELIS logging system. Nanbao 35-2B rig applied the high temperature multi-heat current throughput technology (HTHP Multi-Element Liquid Improving Oil Recovery Technology) to thermal recovery well, substantially enhanced the recovery rate of condensate oil. Th e application of Nitrogen-Filled Foam Profi le Control Technology and skill in oilfi elds showed initial results.

In 2009, the Group was awarded an aggregate of 51 patents, 15 of which were invention patents, and we had valid patents of 162 in total, 50 of which were invention patents.

FINANCIAL REVIEW

1. Income statement analysis

1.1 Revenue

In 2009, with the challenges coming along with the global fi nancial crisis and the downturn of oilfi eld services industry, the Group endeavored the integration aft er the acquisition of CDE. Driven by the enlarged business scale and the commencement of operation of new equipment, our revenue reached a new high, amounting to RMB17,878.7 million, representing an increase of RMB5,735.8 million or 47.2% compared with RMB12,142.9 million for the same period last year. Among that, revenue from drilling services increased by RMB3,971.9 million, mainly due to the full year operation results of the acquired CDE, highly effi cient use of new equipment (COSL Confi dence, COSL Strike, 2 land drilling rigs), and the operation of COSL942 and 3 land drilling rigs for the full year. Besides, the Company had a recognition of the related deferred revenue of RMB1,073.1 million due to the cancellation of the contract for 1 semi-submersible drilling rig which was under construction. Revenue from well services increased by RMB1,684.1 million, which was attributable to the increase in operation volume due to the development of new markets and the addition of drilling equipment. Benefi ted from the additional equipment and eff ective use of external resources, revenue from marine support and transportation services increased by RMB557.4 million. Revenue from geophysical services decreased by RMB477.6 million due to a drop in operation volume.

Annual Report 2009 31 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Th e following table presents income from various segments:

Unit: RMB million

Business segment 2009 2008 Change Change %

Drilling 9,891.8 5,919.9 3,971.9 67.1% Well services 4,416.7 2,732.6 1,684.1 61.6% Marine support and transportation 2,171.3 1,613.9 557.4 34.5% Geophysical 1,398.9 1,876.5 (477.6) (25.5%)

Total 17,878.7 12,142.9 5,735.8 47.2%

1.2 Other revenue

In 2009, other revenue amounted to RMB95.1 million, compared with RMB48.7 million for the same period last year, representing an increase of 95.4%. Th is was mainly due to the increase in insurance compensation received of RMB32.2 million compared with the same period last year.

1.3 Operating expenses

In 2009, operating expenses of the Group totaled RMB13,505.7 million, representing an increase of RMB4,944.6 million or 57.8% from RMB8,561.1 million for the same period last year.

Th e table below shows the breakdown of operating expenses for the Group in 2009 and 2008:

Unit: RMB million

2009 2008 Change Change %

Depreciation of property, plant and equipment and amortisation of intangible assets 2,865.2 1,563.5 1,301.7 83.2% Employee compensation costs 2,669.6 2,106.5 563.1 26.7% Repair and maintenance costs 609.4 420.3 189.1 45.0% Consumption of supplies, materials, fuel, services and others 3,610.0 2,720.1 889.9 32.7% Subcontracting expenses 884.4 542.2 342.2 63.1% Operating lease expenses 589.1 356.1 233.0 65.4% Other operating expenses 1,076.2 693.9 382.3 55.1% Other selling, general and administrative expenses 381.9 158.5 223.4 140.9% Impairment of property, plant and equipment 819.9 – 819.9 –

Total operating expenses 13,505.7 8,561.1 4,944.6 57.8%

32 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Depreciation and amortisation increased by RMB1,301.7 million or 83.2%, due to two reasons. On one hand, there were new additions of large equipment during the year, including two jack-up drilling rigs, namely COSL Conﬁ dence and COSL Strike, 10 oilﬁ eld utility vessels, 3 workover support barges and 2 land drilling rigs. In addition, the depreciation of the equipment commencing its operation or acquired in 2008 were recognised for the full year, including COSL942 and 6 jack-up drilling rigs of CDE.

Employee compensation costs increased by RMB563.1 million or 26.7%, mainly due to recognition of the full year employee compensation costs of CDE, which resulted in an increase of RMB461.8 million. Last year, only the fourth-quarter employee compensation cost of CDE was recognized aft er the acquisition. Besides, the employee compensation costs increased alongside with the business growth and the addition of employees.

Repair and maintenance costs increased by RMB189.1 million or 45.0%, mainly due to recognition of the full year repair and maintenance costs of CDE and 72-day repair work of accommodation rigs, which resulted in an increase of RMB187.2 million in the repair and maintenance costs of CDE. Last year, only the fourth-quarter repair and maintenance costs of CDE were recognized aft er the acquisition and there were no material repair and maintenance.

Consumption of supplies, materials, fuel, services and others increased by RMB889.9 million or 32.7%. Th e addition of 2 new jack-up drilling rigs and the operation of rigs for the full year led to the increase of the operation volume of drilling services and well services segment, which resulted in an increased consumption cost of RMB895.1 million. Meanwhile, the consumption of materials in marine support and transportation services segment increased by RMB83.9 million due to the new 10 utility vessels during the year whereas the consumption of supplies and fuel in geophysical services segment decreased by RMB89.1 million due to the decrease in operation volume resulting from the changes in external environment.

Subcontracting expenses increased by RMB342.2 million or 63.1%, mainly due to the increase in subcontract volume as a result of the business expansion of the Group and enlarged market share.

Operating lease expenses increased by RMB233.0 million or 65.4%, due to the increase in the operation volume of well services, which led to an increase in external lease of equipment, resulting in an increase of RMB141.3 million. To meet the market demand, marine support and transportation services segment actively utilize external resources and rented 14 external vessels resulting in an increase of RMB105.2 million. However, the operating lease expenses of geographical segment decreased due to the decreased revenue.

Other operating expenses increased by RMB382.3 million or 55.1%, mainly due to the related provision for default compensation.

Other selling, general and administrative expenses increased by RMB223.4 million or 140.9%, mainly due to the recognition of a provision for litigations.

Impairment of property, plant and equipment of the Group amounted to RMB819.9 million. Th is was primarily attributable to the fact of the adverse impact of the macroeconomic environment on the industry and the delay in the delivery of the three semi-submersible rigs under construction, the management performed an impairment test on the assets, in accordance with the requirements of the applicable accounting standard, and recognized an asset impairment loss of RMB819.9 million based on the test result.

Annual Report 2009 33 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Th e operating expenses for each of the segments are as shown in the table below:

Unit: RMB million

Business Segment 2009 2008 Change Change %

Drilling 7,180.2 3,812.6 3,367.6 88.3% Well services 3,679.9 2,281.2 1,398.7 61.3% Marine support and transportation 1,531.7 1,128.6 403.1 35.7% Geophysical 1,113.9 1,338.7 (224.8) (16.8%)

Total 13,505.7 8,561.1 4,944.6 57.8%

1.4 Operating proﬁ t

Th e operating profi t of the Group during the year amounted to RMB4,468.1 million, representing an increase of RMB837.6 million or 23.1% from RMB3,630.5 million for the same period last year. Th is was primary attributable to the fact of the acquisition of CDE and business expansion, operating profi ts from drilling services segment, well services segment and marine support and transportation services segment increased by RMB629.6 million, RMB272.5 million and RMB163.0 million respectively while due to the changes within the industry, the operating profi t from geophysical services segment decreased by RMB227.5 million.

Th e operating proﬁ ts for each of the segments are as shown in the table below:

Unit: RMB million

Business Segment 2009 2008 Change Change %

Drilling 2,747.5 2,117.9 629.6 29.7% Well services 743.3 470.8 272.5 57.9% Marine support and transportation 654.2 491.2 163.0 33.2% Geophysical 323.1 550.6 (227.5) (41.3%)

Total 4,468.1 3,630.5 837.6 23.1%

1.5 Financial expenses

Th e table below shows the breakdown of ﬁ nancial expenses for the Group in 2009:

Unit: RMB million

2009 2008 Change Change %

Exchange loss, net 92.8 91.4 1.4 1.5% Finance costs 786.4 638.9 147.5 23.1% Interest income (60.4) (191.4) 131.0 (68.5%)

Total 818.8 538.9 279.9 51.9%

In 2009, the ﬁ nancial expenses was RMB818.8 million, representing an increase of RMB279.9 million or 51.9% compared with last year, mainly due to the increase in ﬁ nance cost and the decrease in interest income.

34 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Finance costs of the Group increased by RMB147.5 million, mainly due to the increase in interest expenses of approximately RMB398.7 million, which came along with the additional borrowings, primarily comprising: ① the interest expenses for the loan of US$2.2 billion during the year for the acquisition of CDE Group in September 2008 (only three months for last year); ② the Group’s additional borrowing of RMB1.75 billion for its working capital and the construction of land drilling rig in Libya; and ③ the increase in interest expenses as part of the interests from the US$100 million, NOK500 million and RMB1.5 billion bonds ceased to be capitalized and was included in interest expenses following the completion of ten utility vessels and two drilling rigs during the year.

Besides, given that the Group redeemed its NOK500 million senior unsecured NOK bonds and the related cross currency interest swap contract of NOK250 million was cancelled, the realized gain in fair value increased by RMB201.0 million and the loss from changes in fair value decreased by RMB53.0 million.

Interest income decreased by RMB131.0 million, mainly due to the decrease in interest income as a result of the decrease in bank deposits which resulted from the increase in operating expenses in conjunction with the business expansion of the Group.

1.6 Share of proﬁ ts and losses from jointly-controlled entities

In 2009, our share of profi ts from jointly controlled entities amounted to RMB110.3 million, representing a decrease of RMB105.4 million or 48.9% compared to RMB215.7 million for the same period last year. Th is was primarily attributable to the fact of the global fi nancial crisis, the share of profi ts from the 10 jointly-controlled entities of the Group recorded a decrease in profi t of RMB123.1 million in total, except for the share of profi ts from China Nanhai-Magcobar Mud Corporation Ltd. and China Off shore Fugro Geo Solutions (Shenzhen) Company Ltd., which recorded an increase in profi t of RMB17.7 million. Among those companies, the profi t from Eastern Marine Services Ltd. decreased most due to a lower rental rate, resulting in a decrease of RMB62.4 million. Due to Atlantis Deepwater Orient Ltd.’s deepwater technology research expenditure, the Company’s losses increased by RMB24.8 million.

1.7 Proﬁ t before tax

Th e proﬁ t before tax attained by the Group was RMB3,759.6 million in 2009, representing a growth of RMB452.3 million or 13.7% compared with RMB3,307.3 million for the same period last year.

1.8 Income tax

Th e net income tax expense in 2009 was RMB624.3 million, representing an increase of RMB419.3 million from RMB205.0 million of last year. Firstly, it was attributable to widened income stream of the Group. Secondly, it was due to the fact that, the Company, as an advanced technology enterprise, received tax refund last year for 2007 in the amount of RMB524.0 million. As the Company provided for income tax at the preferential rate of 15% as an advanced technology enterprise in 2008, there were no return of preferential tax for advanced technology enterprise during the year. Meanwhile, as the Group operated in countries with low tax rates, related overseas income tax decreased by approximately RMB180.0 million.

1.9 Proﬁ t aft er tax

In 2009, the proﬁ t aft er tax of the Group was RMB3,135.3 million, representing an increase of RMB33.1 million or 1.1% from RMB3,102.2 million of the same period last year.

Annual Report 2009 35 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

1.10 Dividend

For 2009, the Board proposed a ﬁ nal dividend of RMB0.14 per ordinary share, totaling RMB629.3 million.

2. Statement of ﬁ nancial position analysis

Subsequent to the announcement of asset impairment in the interim period, the Group completed the purchase price allocation (PPA) in respect of its acquired assets on 30 September. As such, the Group made retrospective adjustments on the accounting items in the statement of ﬁ nancial position at the beginning of the period. Th e following table sets out the change of balances of the relevant accounting items before and aft er the adjustments:

Unit: RMB million

Accounting item Before adjustment Aft er adjustment

Property, plant and equipment 41,855.7 40,345.2 Goodwill 3,480.5 4,604.8 Deferred tax liabilities 2,429.0 1,697.1 Deferred revenue 1,512.6 1,858.3

(All data set out in the following analysis for 2008 is aft er adjustments)

As of 31 December 2009, the total assets of the Group amounted to RMB60,776.5 million, representing an increase of RMB4,575.6 million or 8.1% compared with RMB56,200.9 million at the end of 2008. Th e total liabilities was RMB38,470.9 million, representing an increase of RMB2,067.8 million or 5.7% compared with RMB36,403.1 million at the end of 2008. Th e shareholders’ equity was RMB22,305.6 million, representing an increase of RMB2,507.8 million or 12.7% compared with RMB19,797.8 million at the end of 2008. Th e analysis of reasons for signiﬁ cant changes in the amount of accounting items on the statement of ﬁ nancial position is as follows:

(Note: Th e average exchange rate of 1:6.8312 (US$ to RMB) in 2009 was applied for the changes in US$ set out in the statement of fi nancial position analysis below)

2.1 Property, plant and equipment

As of 31 December 2009, the property, plant and equipment of the Group were RMB45,086.5 million, representing an increase of RMB4,741.3 million or 11.8% compared with RMB40,345.2 million as of the beginning of the year. Th e increase was mainly due to the fact that the Group continued the construction projects of four jack-up drilling rigs, three semi-submersible drilling rigs, two land drilling rigs, ten oilﬁ eld utility vessels and three workover support barges during the year and purchased certain well services equipment and facilities.

2.2 Available-for-sale ﬁ nancial assets

As of 31 December 2009, the available-for-sale ﬁ nancial assets of the Group were RMB19.4 million, representing a decrease of RMB14.9 million or 43.5% compared with RMB34.3 million as of the beginning of the year. Th e decrease was mainly due to the material decline in the market value of the investment in Petrojack ASA held by CDE, which was deemed to be impaired by the Group. An accumulated impairment amounting to RMB121.5 million was recognized, of which RMB15.0 million was recognized during the year.

36 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

2.3 Pledged time deposits (non-current portion)

As of 31 December 2009, the non-current portion of pledged time deposits of the Group was RMB39.1 million, representing a decrease of RMB39.1 million or 50.0% compared with RMB78.2 million as of the beginning of the year. Th e decrease was mainly due to the fact that the pledged deposits of RMB39.1 million was transferred to the pledged time deposits current portion.

2.4 Prepayments, deposits and other receivables

As of 31 December 2009, the prepayments, deposits and other receivables of the Group were RMB755.5 million, representing a decrease of RMB750.4 million or 49.8% compared with RMB1,505.9 million as of the beginning of the year. Th e decrease was mainly due to the transfer of prepayments to construction in progress as the construction project of the 350-feet drilling rig progressed, which resulted in a decrease of RMB753.3 million in prepayments.

2.5 Accounts receivables

As of 31 December 2009, the accounts receivables of the Group were RMB3,745.5 million, representing an increase of RMB1,010.5 million or 36.9% compared with RMB2,735.0 million as of the beginning of the year. Th e increase was mainly due to the increased revenue of the Group and the prolonged average credit term compared with 2008.

2.6 Pledged deposits (current portion)

As of 31 December 2009, the current portion of the pledged deposits of the Group were RMB247.3 million, representing an increase of RMB193.5 million or 360.0% compared with RMB53.8 million as of the beginning of the year. Th e increase was mainly due to the increase in pledged deposits for bank guarantee of RMB208.2 million.

2.7 Cash and cash equivalents

As of 31 December 2009, cash and cash equivalents of the Group were RMB4,014.6 million, representing a decrease of RMB549.2 million or 12.0% compared with RMB4,563.8 million as of the end of 2008. Th e details were provided in “3. Cash Flow Statement Analysis” below.

2.8 Trade and other payables

As of 31 December 2009, trade and other payables of the Group were RMB4,224.0 million, representing an increase of RMB793.1 million or 23.1% compared with RMB3,430.9 million as of the beginning of the year. Th e increase was mainly due to the increase in procurement following the operation commencement of various assets, which drove the trade and other payables by RMB431.6 million. Meanwhile, the accrued liability had increased due to the related provision for default compensation and litigations.

2.9 Interest-bearing bank borrowings (current)

As of 31 December 2009, the interest-bearing bank borrowings (current) of the Group were RMB283.1 million, representing a decrease of RMB7,495.5 million or 96.4% compared with RMB7,778.6 million as of the beginning of the year. Th e decrease was mainly due to the reﬁ nancing in May this year for the early repayment of the short-term portion of a syndicate bank loan of US$1.4 billion made in September 2008 for the acquisition of CDE (US$933.3 million in aggregate, equivalent to approximately RMB6,375.8 million) and the early repayment of the original short-term loan of the CDE group obtained from Nordea Bank Norge ASA of approximately RMB475.9 million in March this year. Besides, the borrowing (current portion) from Nordea Bank Norge ASA of approximately RMB659.6 million was reﬁ nanced as long-term borrowing.

Annual Report 2009 37 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

2.10 Interest-bearing bank borrowings (non-current)

As of 31 December 2009, the interest-bearing bank borrowings (non-current) of the Group were RMB28,151.0 million, representing an increase of RMB11,795.6 million or 72.1% compared with RMB16,355.4 million as of the beginning of the year. Th e increase was mainly due to the borrowings of RMB1,300.0 million from CNOOC Finance Co., Ltd. for the repayment of previous loans and as working capital. In May 2009, US$0.8 billion (equivalent to approximately RMB5,465.0 million) and US$0.6 billion (equivalent to approximately RMB4,098.7 million) were borrowed from the Bank of China Limited and the Industrial and Commercial Bank of China Limited respectively. US$1.58 billion (equivalent to approximately RMB10,793.3 million) was borrowed from the Bank of China Limited for the repayment of CDE’s Citibank loans and as working capital. In April 2009, RMB450.0 million was borrowed from the Import and Export Bank of China for the construction of the land drilling rig for operations in Libya.

Th e commercial borrowing of RMB654.1 million and the syndicate bank borrowing of RMB9,255.5 million as of the beginning of the year were fully repaid during the year. Besides, RMB283.1 million was transferred from the long term portion of the interest- bearing bank borrowings to its current portion.

2.11 Long term bonds

As of 31 December 2009, the long term bonds of the Group were RMB2,670.0 million, representing a decrease of RMB1,358.3 million or 33.7% compared with RMB4,028.3million as of the beginning of the year. Th e decrease was mainly due to the full redemption of senior unsecured NOK bonds of NOK500 million (equivalent to approximately RMB485.5 million), the partial redemption of the senior unsecured US$ bonds (equivalent to approximately RMB115.4 million) and the partial redemption of the second security priority US$ bonds (equivalent to approximately RMB762.4 million).

2.12 Deferred revenue

As of 31 December 2009, the deferred revenue of the Group was RMB780.1 million, representing a decrease of RMB1,078.2 million or 58.0% compared with RMB1,858.3 million as of the beginning of the year. Th e decrease was mainly due to the recognition of deferred income of RMB1,073.1 million, which resulted from the cancellation of operation contract of a semi- submersible drilling rig during the year.

2.13 Derivative ﬁ nancial instruments

As of 31 December 2009, the Group did not have any derivative ﬁ nancial instruments. Th e derivative ﬁ nancial instruments as of the beginning of the year were RMB49.3 million. Th e decrease was mainly due to the fact that the senior unsecured NOK bonds of NOK500 million were redeemed by the Group and the related cross currency interest swap contract of NOK 250 million was cancelled.

38 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

3. Cash ﬂ ow statement analysis

As of the beginning of 2009, we held cash and cash equivalents of RMB4,295.5 million. Th e net cash infl ow from operating activities from the year was RMB5,604.9 million, net cash outfl ow from investing activities was RMB7,782.7 million, net cash infl ow from fi nancing activities was RMB1,136.8 million and the decrease of RMB39.9 million was due to the impact of foreign exchange fl uctuations. As of 31 December 2009, our cash and cash equivalents were RMB3,214.6 million.

(Note: Th e average exchange rate of 1:6.8312 (US$ to RMB) in 2009 was applied for the changes in US$ set out in the cash fl ow statement analysis below.)

3.1 Cash ﬂ ows from operating activities

In 2009, net cash flows from operating activities of the Group reached RMB5,604.9 million, representing an increase of RMB1,567.1 million or 38.8% compared with RMB4,037.8 million for the same period last year. Th e increase was mainly due to the increase in cash gained from the provision of services along with the business expansion and the inclusion of the full year operation results of CDE.

3.2 Cash ﬂ ows from investing activities

In 2009, net cash outﬂ ows from investing activities of the Group amounted to RMB7,782.7 million, representing a decrease of RMB12,842.8 million or 62.3% compared with RMB20,625.5 million for the same period last year. Th e decrease was mainly due to the cash payment of RMB15,647.0 million for the acquisition of CDE by the Group in the same period last year but no such acquisition occurred during the year.

3.3 Capital expenditure

In 2009, the capital expenditure of the Group amounted to RMB8,413.3 million, representing an increase of RMB1,575.5 million or 23.0% compared with RMB6,837.8 million as of the same period last year.

Th e capital expenditure of each business segment is as follows:

Unit: RMB million

Business Segment 2009 2008 Change Change %

Drilling 6,062.8 3,754.6 2,308.2 61.5% Well services 760.1 1,287.3 (527.2) (41.0%) Marine support and transportation 924.7 1,292.0 (367.3) (28.4%) Geophysical 665.7 503.9 161.8 32.1%

Total 8,413.3 6,837.8 1,575.5 23.0%

Th e capital expenditure of RMB6,062.8 million of the drilling services segment was mainly due to the construction of one 375- feet jack-up drilling rig, one 400-feet jack-up drilling rig, three 2,500-feet semi-submersible drilling rigs, the construction of two land drilling rigs, two 350-feet jack-up drilling rigs and four 200-feet jack-up drilling rigs. Capital expenditure for well services was RMB760.1 million, mainly used for building 2 multi-function drilling platform (LIFTBOAT) and purchasing of various well services equipments and facilities. Capital expenditure for marine support and transportation services was RMB924.7 million, mainly used for building 10 oilﬁ eld utility vessels and 3 workover support barges. Capital expenditure for geophysical services was RMB665.7 million, mainly due to the construction of a deepwater reconnaissance vessel and a submarine cable ﬂ otilla.

Annual Report 2009 39 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

3.4 Cash ﬂ ows from ﬁ nancing activities

In 2009, net cash infl ow from fi nancing activities amounted to RMB1,136.8 million, comprising of cash infl ow of RMB23,328.6 million and cash outfl ow of RMB22,191.8 million.

Th e fi nancing source of the Group in 2009 was mainly derived from several loans. Th e loan of RMB1,300.0 million from CNOOC Finance Co., Ltd. for the settlement of previous loan and as working capital. In May 2009, US$0.8 billion (equivalent to approximately RMB5,465.0 million) and US$0.6 billion (equivalent to approximately RMB4,098.7 million) were borrowed from the Bank of China Limited and the Industrial and Commercial Bank of China Limited respectively for the refi nancing of a syndicate bank loan of US$1.4 billion which belonged to a subsidiary. During the year, US$1.58 billion (equivalent to approximately RMB10,793.3 million) was borrowed from the Bank of China Limited for the refi nancing of CDE’s Citibank loans and as working capital. In April 2009, RMB450.0 million was borrowed from the Import and Export Bank of China for the construction of the land drilling rig for operation in Libya. Besides, commercial borrowings amounted to US$63.8 million (equivalent to approximately RMB435.8 million) and short-term borrowing of RMB700 million were used as working capital.

Cash outfl ow in fi nancing activities was mainly due to the refi nancing of a syndicate bank loan of US$1.4 billion amounting to RMB20,177.3 million, which belonged to a subsidiary and the refi nancing of CDE’s Nordea Bank loans. Meanwhile, during the year, dividend payment, repayment of interests and other payments related to fi nancing activities amounted to RMB629.3 million, RMB1,318.4 million and RMB66.7 million in cash, respectively.

OUTLOOK

Looking forward to 2010, the global economy will maintain a weak recovery, but a lot of uncertainties still exist. In the “World Economic Situation and Prospects 2010” published by the United Nations, it was forecasted that the global economy will achieve a moderate growth rate of 2.4% in 2010. Th e pace of economic recovery of the world’s developed economies will be slow, while the developing economies will become the major momentum of global economic growth, with China’s economy in 2010 being forecast to an increase of 8.8%. Th e world economy will continue to strengthen its positive trend, but there remains quite a lot of instability and uncertainty, thus restraining the economic development. Th e business development environment faced by the oilﬁ eld services sector is still very harsh.

Faced with the complexity of 2010, COSL will continue to consolidate the domestic market, develop overseas markets to ensure a stable growth in revenue, enhance technology research and development and technological pool, develop deep water services capability as well as strengthen risk control and cost management, so as to achieve continuous healthy development. We will further enhance the service capability and take social responsibility actively, while maximizing shareholder’s value and develop an all win situation for its shareholders, customers, staﬀ and business partners.

40 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

7. Corporate Governance 1. Corporate Governance Report 2009 Th e Board is of the view that corporate governance standards of the Company have been kept at a high level throughout 2009. Th e Company eﬀ ectively ran shareholders’ meetings, the decision making and supervising systems of the Board and Supervisory Committee respectively, in particular, professional committees of the Board and independent directors have played a practical role in the decision making and supervising process pursuant to corporate governance principles and supervisory requirements, ensured the compliance of decisions of the Company with the interests of shareholders as a whole; and the establishment and running of decision making and supervising systems of the Company have also complied with supervisory requirements, not in violation of laws, regulations and public undertakings of the Company.

Th e Board is of the view that in relation to the compliance with the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (hereaft er referred to as “the Code”), there were no material changes as compared with the Corporate Governance Report 2008. Th e Board has also reviewed the compliance with the regulatory documents on listed companies issued by China Securities Regulatory Commission and is of the view that the corporate governance of the Company has met the requirements set out in those documents during the reporting period.

Aft er reviewing the compliance with the provisions of the Code, the Board is of the view that shareholders should be explained in detail in respect of the compliance with that Code Provision E 1.2 during the reporting period: the annual general meeting of the Company held on 3 June 2009 was presided over by an Independent Director of the Company, Mr. Simon X. Jiang, as the Chairman and the Vice Chairman were unable to chair the meeting due to other urgent business. Mr. Jiang’s chairing of the meeting was made in accordance with the Articles of Association of the Company, which stated that the Chairman of the meeting could be one of the directors elected by the shareholders attending the meeting. Meanwhile, the Chief Executive Oﬃ cer and other senior management also attended the meeting and answered the inquiries raised by shareholders together with the Chairman of the meeting.

Apart from the above deviation, the Board of the Company is not aware of any other deviation from the provisions set out in the Listing Rules.

Th e Company has made the following improvement in respect of the corporate governance in 2009:

1. We have strengthened the management and governance of the Board towards investment activities of the Company. Th e Company revised the Investment and Budgeting Management System in relation to the approvals authorization on the ﬁ xed asset and equity investments. According to the revised system, any equity investment should be approved by the Board or the General Meeting.

2. We have strengthened the management and governance of the Board and Supervisory Committee towards signiﬁ cant equipment investment projects of the Company. In 2009, the Board and Supervisory Committee reviewed the operation of signiﬁ cant equipment investment projects and brought up improvement requirement for existing problems.

3. We continued to optimize the relevant system to further raise the standard of corporate governance. Th e Company amended the system documents such as Articles of Association and Rules on Procedure of the Audit Committee to provide system guarantees for the convenience of the shareholders’ involvement in the Company’s management, and for the strengthened evaluation of eﬀ ectiveness of the ﬁ nancial system by Independent Directors.

I. Director's Involvement in Securities Transactions Following specifi c enquiries with all directors, the Board confi rmed that during the 12 months ended 31 December 2009, the provisions of the Model Code for Securities Transaction by Directors of Listed Issuers (“the Model Code") set out in Appendix 10 of the Listing Rules were observed. At present the Company has adopted a code of conduct for securities transactions by directors that exceed the provisions set out in the Model Code (such as stricter regulations regarding disclosure compared to the Model Code). Upon specifi c inquiries, all directors have confi rmed that they were in strict compliance with the provisions of the Model Code. In addition, directors, supervisors and senior management of the Company confi rmed that during the twelve months ended 31 December 2009, they complied with the Management Rules with regard to the Holding of and Changes in Company Shares by Directors, Supervisors and Senior Management of Listed Companies of the China Security Regulatory Commission.

Annual Report 2009 41 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

II. Duty Performance of the Board of Directors (I) Composition of the Board of Directors

Th e composition of the Board of Directors during the year and/or on the date of this report is as follows:

Chairman: Fu Chengyu (elected to continue his oﬃ ce of Chairman on 4 June 2009) Vice-chairman and executive director: Liu Jian (elected as vice-chairman at the Board Meeting dated 4 June 2009. Yuan Guangyu, the former vice-chairman, resigned on 3 June 2009) Executive directors: Li Yong (reappointed at the General Meeting dated 3 June 2009) Non-executive director: Wu Mengfei Independent non-executive directors: Andrew Y. Yan (his term of oﬃ ce expired on 3 June 2009), Gordon C.K. Kwong, Simon X. Jiang and Tsui Yiu Wa (elected as an director on the General Meeting dated 3 June 2009)

(II) Th e Roles of the Board of Directors and the Management

Th e Articles of Association of the Company clearly deﬁ ne the duties and functions of the Board of Directors and the Management. Pursuant to the Articles of Association amended in 2009 (the amendments were approved by General Meeting on 3 June 2009), the positions of the CEO and Chairman of the Company has been separated. Th e duties and functions of the CEO set out in the Articles of Association were as follows:

1. Taking charge of the production, operation and management of the Company and implementing the resolution of the Board;

2. Implementing the annual operation plan and investment programme of the Company;

3. Establishing of the internal management structure programme of the Company;

4. Establishing the basic management system for the Company;

5. Establishing the underlying rules and regulations for the Company;

6. Nominate the appointment or dismissal of the President, Vice-President and CFO;

7. Appointing or dismissing the management other than those appointed or dismissed by the Board;

8. Determining the incentive and penalty, promotion, increase in salary, recruitment, employment and dismissal;

9. Acting on behalf of the Company to deal with the signiﬁ cant external aﬀ airs in accordance with the authorization of the Board;

10. Taking charge of the planning and implementation of the Company’s strategy, and reporting to the Board periodically on the progress and eﬀ ectiveness;

11. Taking charge of the Investment Decision-making Committee of the Company and reporting to the Board in respect of the investment activities;

12. In the event of any vacancy of senior management of the Company which should be appointed by the Board, the CEO could appoint an acting oﬃ cer or make any other temporary arrangement before the new appointment was made by the Board;

13. Any other duties and functions which are designated by the Articles of Association and the Board.

42 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(III) Board Meetings

Th e Board of Directors convened ﬁ ve regular meetings during the year, please see Table I of this Report for details of meeting attendance of directors. For other adhoc items not within the regular Board Meeting’s agenda and require approval from the Board, the Chairman may serve the Board’s proposed resolutions in written form to the members of the Board in accordance with related requirements of the Articles of Association, the items will become valid resolutions upon signing by the number of directors which meets the quorum as stated in the Articles of Association. Besides, to create more opportunities for the independent non-executive directors to express their views and make recommendation in respect of the Company’s aﬀ airs, Chairman would have several meetings with independent non-executive directors in the absence of executive directors every year so as to listen to the advice of independents non-executive directors in respect of the corporate governance and management (this practice has adopted the provision of Recommended Best Practices in A.2.7 of the Code). Th e Board is of the view that meeting proceedings and resolutions of the Board complied with requirements of laws, regulations and the Articles of Association, ensured prudent discussion by directors before decision making of material items, and performance of integrity and due diligent responsibilities of directors in related decision making. Please see Table II for detailed resolutions adopted by the Board in 2009.

(IV) Duty Performance of Independent Non-executive Directors

Th e Board now has three independent non-executive directors, all of them have rich professional experience in the fi elds of fi nance or investment, and are very familiar with operation of board of directors and duties of independent non-executive directors of listed companies. During the reporting period, the independent non-executive directors (including Andrew Y. Yan, who resigned on 3 June 2009 when his term of offi ce expired) eff ectively performed their due diligent and attentive responsibilities as directors, and provided various professional advices for the Company, especially in the review of fi nancial reports, the review of connected transactions, the evaluation of major acquisitions, the review and examination of long term encouragement plans for senior management, among which, please see Chapter VIII of this Corporate Governance Report for details of related reviews of fi nancial reports and the internal control system. During the reporting period, independent directors also reviewed continuous connected transactions of the Company, and confi rmed that such transactions are fair and reasonable and within the limits approved by shareholders’ general meetings. In addition, during the reporting period, independent non-executive directors also appointed an independent fi nancial adviser to review a connected transaction (assigning a related party to construct drilling rigs) which required to be approved at General Meeting, and provided their conclusion on the fairness and necessity of such transaction to shareholders in accordance with the comments of independent fi nancial adviser. Please see Table I for details of Board and professional committee meeting attendance of independent directors.

During the period under review, independent non-executive directors have not objected to resolutions of the Board of the Company, or any other item of the Board.

(V) Particulars of General Meeting convened by the Board during the reporting period were set out in Chapter VIII “Summary of General Meetings” of this annual report. In the opinion of the Board, the Company complied with all requirements of resolution of the General Meeting during the reporting period; and reviewed implementation condition of General Meeting by the Company, and considered there was no problem occurred in implementation of resolution of General Meeting.

(VI) Other matters

During the period under review, the number and qualiﬁ cations of independent non-executive directors of the Company were in compliance with Rules 3.10 (1) and (2) of the Listing Rules and the independence of current independent non-executive directors of the Company is in compliance with the requirement set out in the Listing Rules 3.13.

Note: Th e terms of four directors (including one executive director, one non-executive director and two independent non-executive directors) of the Company expired in the second half of 2008, as the amendment in 2007 of the Articles of Association of the Company took the election date at shareholders’ general meetings as the uniﬁ ed commencement dates of directors (before such amendment, the Articles of Association does not specify the commencement date of directors, in fact, resolutions have been adopted at shareholders’

Annual Report 2009 43 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

general meetings to defi ne such commencement dates, therefore, elections may be held at shareholders’ general meetings before the expiry of such terms). To facilitate the completion of election procedures of newly elected or renewal of directors at the annual general meeting held on 3 June 2009, the Company fi nalized the renewals and changes for above directors (for the details, please refer to the relevant disclosures of 2008 Annual General Meeting). However, the candidate to replace the independent director Gordon C.K. Kwong, who was one of the above directors whose term of offi ce has expired, was unqualifi ed prior to the above Annual General Meeting. Th erefore, the Company needs more time to seek for another appropriate candidate. Th e Company Law and Articles of Association provides that “In the event that reelection has not been held promptly before the expiry of the term of offi ce of the directors, or the directors tender their resignation during their terms of offi ce, which causes the number of the Board member to drop below the quorum, the former directors should perform their duties in accordance with the laws, administrative regulations and Articles of Association before the elected directors take offi ce.” Th us, Gordon C.K. Kwong still performed his duty as an independent director of the Company until his successor was elected at the General Meeting.

III. Chairman and Chief Executive Offi cer Th e functions of the Chairman and the Chief Executive Offi cer of the Company are clearly defi ned and such positions are at present separately held by two persons, i.e., Fu Chengyu as Chairman and Mr. Liu Jian as the Chief Executive Offi cer (the former CEO, Mr. Yuan Guanyu resigned from the duty of CEO on 2 March 2009, and has been replaced by Mr. Liu Jian). Th e Company amended the Articles of Association in 2009 and separated the positions of CEO and President (“CEO” and “President” was the same position in the original Articles of Association). Pursuant to the current Articles of Association, the CEO will perform the duties and functions of the “manager” of a limited joint stock company stipulated in the PRC Company Law and be responsible for the Board on behalf of the management of the Company.

IV. Terms of offi ce of non-executive directors are as follows: Th e terms of offi ce of Fu Chengyu and Tsui Yiu Wa are from 3 June 2009 to the time when the 2012 Annual General Meeting is convened. Th e term of offi ce of Gordon C.K. Kwong is from 30 October 2005 to 29 October 2008 (his term of offi ce is extended until his successor is elected at the 2010 Annual General Meeting). Th e term of offi ce of Simon X. Jiang is from 27 May 2007 to the time when his successor is elected at the 2010 Annual General Meeting. Th e term of offi ce of Wu Mengfei is from 27 May 2007 to the time when his successor is elected at the 2010 Annual General Meeting.

V. Directors’ Remuneration (I) Th e composition and functions of the Remuneration Committee

1. Th e Remuneration Committee of the Company consists of four members, all of whom are non-executive directors, namely Gordon C.K. Kwong, Simon X. Jiang, Tsui Yiu Wa and Wu Mengfei. Th ree of them are independent non-executive directors. Simon X. Jiang, an independent non-executive director, acts as Chairman.

2. Th e functions of this committee are to formulate the standard for assessing the performance of directors, supervisors and members of senior management and to conduct such assessment, formulate and review the remuneration policy and scheme for directors, supervisors, and the senior management.

(II) Th e work of the Remuneration Committee during the year

During the reporting period, the committee held two meetings (please see Table I for meeting summaries), reviewing the implementation report of Company management with regard to the H share stock appreciation rights plan, the performance assessment report of assignees pursuant to such plan, and the annual remuneration report of directors, supervisors and senior management.

44 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

VI. Th e Nomination of Directors (I) Th e composition and functions of the Nomination Committee

1. Th e Nomination Committee of the Company consists of three members, namely Liu Jian, Simon X. Jiang and Tsui Yiu Wa of whom two are independent non-executive directors, and Liu Jian acts as Chairman.

2. Major functions of the committee are to select and recommend candidates for directors of the Company and to recommend the standards and procedures for selecting such candidates.

(II) Th e work of the Nomination Committee during the year, procedures and standards for nomination

During the reporting period, the committee held one meeting (please see Table I for meeting summaries), and advised the Board with regard to the structure of the Board, renewal arrangements of directors, among others.

VII. Th e Remuneration of Auditors In 2009, the Company re-appointed Ernst & Young Hua Ming and Ernst & Young as auditors of the Company and the fees for the audit and non-audit work provided to the Company during the reporting period were as follows:

Th e audit fees totaled RMB15,570,000 for audit and review of the annual and interim ﬁ nancial statements. Th e non-audit fees of consultation for tax, IT, acquisition and integration which totaled RMB6,262,000 was recognized in the income statement.

VIII. Th e Audit Committee (I) Th e composition and functions of the Audit Committee

1. Th e Audit Committee consists of three members, namely Gordon C.K. Kwong, Simon X. Jiang and Tsui Yiu Wa, all of whom are independent non-executive directors and Gordon C.K. Kwong acts as the Chairman.

2. Th e functions of this committee are to review the accounting policy, ﬁ nancial condition and ﬁ nancial reporting procedures of the Company; to review the internal control structure; to recommend and engage external audit body; and to be mainly responsible for the communication, supervision and review of the internal and external audit of the Company.

Annual Report 2009 45 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

(II) Th e work of the Audit Committee during the year

During the reporting period, the committee held four meetings (please see Table I for meeting summaries). Th e major work of the Audit Committee for the year was:

1. Reviewed the fi nancial reports of the annual operating results of 2008, the fi rst quarterly operating results of 2009, the interim operating results of 2009 and the third quarterly operating results of 2009 of the Company. During the review process, the members performed suffi cient and necessary communication with the external auditor and the management of the Company in the process of examination, and fulfi lled its duties in ensuring the Company's compliance with regulations, the completeness and accuracy of the operating results disclosed by the Company.

2. Reviewed the internal control system of the Company. During the reporting period, the committee studied the recommendations in the “Report to the Audit Committee” from the auditor, reviewed the assessment report on eﬀ ectiveness of internal control of the Company, including the 2009 Self Assessment Report on Internal Control of the Company, and issued speciﬁ c opinions regarding the improvements of internal control system to the Board of Directors and management.

3. During the reporting period, the committee examined the related reports regarding the issue of A shares by the Company such as tax compliance and GAAP diﬀ erences in the ﬁ nancial statements.

4. Made recommendations regarding re-appointment of the auditors. Th e committee considered Ernst & Young and Ernst & Young Hua Ming serving as the Company's external auditors appropriate. Approval for the re-appointment of the auditors was granted by the Board of Directors.

IX. Responsibilities Undertaken Th e Board of Directors acknowledges its responsibilities of preparing the fi nancial statements of the Company and the auditors have also reported on their audits of the fi nancial statements; the Board of Directors undertakes the responsibilities for the eff ective internal control of the Company and its subsidiaries and has completed the relevant review and assessment during the reported period, and concluded that there were no major defi ciencies in the internal controls of the Company and its subsidiaries; the Board of Directors undertakes herewith that, unless otherwise stated in this report, there are no major events and circumstances of uncertainty which may aff ect the operation of the Company as a going concern.

46 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Table I:

Board Meetings & Professional Committee Meetings

Meeting Time Place Attendant Moderator Notes

First Meeting of 1 April Hong Kong Fu Chengyu, Yuan Guangyu, Wu Mengfei, Fu Chengyu Two supervisors Board of Directors 2009 Li Yong, Andrew Y. Yan, Gordon C.K. attended as a non- Kwong, Simon X. Jiang voting delegate Second Meeting of 29 April Beijing Fu Chengyu, Yuan Guangyu, Wu Mengfei, Li Yong, Fu Chengyu Telephone conference Board of Directors 2009 Gordon C.K. Kwong, Simon X. Jiang Th ree supervisor attended as a non- voting delegate Th ird Meeting of 28 August Shenzhen Fu Chengyu, Liu Jian, Wu Mengfei, Fu Chengyu Th ree supervisors Board of Directors 2009 Li Yong, Gordon C.K. Kwong, attended as a non- Simon X. Jiang, Tsui Yiu Wa voting delegate

Fourth Meeting of 28 October Beijing Fu Chengyu, Liu Jian, Wu Mengfei, Li Yong Fu Chengyu Telephone conference Board of Directors 2009 Gordon C.K. Kwong, Simon X. Jiang, Th ree supervisors attended Tsui Yiu Wa as a non-voting delegate Fift h Meeting of 9 December Shenzhen Fu Chengyu, Liu Jian, Wu Mengfei, Fu Chengyu Th ree supervisors attended Board of Directors 2009 Li Yong, Gordon C.K. Kwong, as a non-voting delegate Simon X. Jiang, Tsui Yiu Wa First Meeting of 31 March Shenzhen Gordon C.K. Kwong, Andrew Y. Yan Gordon C.K. One supervisor attended Audit Committee 2009 Simon X. Jiang Kwong as a non-voting delegate Second Meeting of 28 April Beijing Gordon C.K. Kwong, Simon X. Jiang Gordon C.K. Telephone conference Audit Committee 2009 Kwong Th ird Meeting of 27 August Shenzhen Gordon C.K. Kwong, Gordon C.K. Two supervisors attended Audit Committee 2009 Simon X. Jiang, Tsui Yiu Wa Kwong as a non-voting delegate Fourth Meeting of 27 October Beijing Gordon C.K. Kwong, Simon X. Jiang, Gordon C.K. Telephone conference Audit Committee 2009 Tsui Yiu Wa Kwong First Meeting of 31 March Shenzhen Andrew Y. Yan, Gordon C.K. Kwong, Andrew Y. Yan Remuneration Committee 2009 Simon X. Jiang, Wu Mengfei Second Meeting of 27 August Shenzhen Gordon C.K. Kwong, Simon X. Jiang, Simon X. Jiang Remuneration Committee 2009 Tsui Yiu Wa, Wu Mengfei First Meeting of 1 April Hong Kong Yuan Guangyu, Andrew Y. Yan, Simon X. Jiang Yuan Guangyu Nomination Committee 2009

Annual Report 2009 47 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Table II:

Particulars of the Board resolutions

Meeting Resolutions approved

First Meeting of Board of Directors 1. Approval of the audited 2008 annual ﬁ nancial report of the Company; 1 April 2009 2. Approval of related resolutions of the audit committee of the Board; 3. Approval of the 2008 Annual Self Assessment Report on Internal Control and Social Responsibility Report of the Company; 4. Approval of the 2008 annual proﬁ t distribution and dividend plan of the Company; 5. Approval of the resolution on 2008 annual results announcement of the Company; 6. Approval of the 2008 annual work report of the Board and the Corporate Governance Report of the Company; 7. Approval of the resolution on the convening of the shareholders’ Annual General Meeting; 8. Approval of the resolution on the authorization granted by the shareholders’ general meeting to the Board to issue 20% of H shares; 9. Approval of related resolutions of the remuneration committee; 10. Approval of the resolution of nomination committee in relation to the proposal towards the nomination of directors and the adjustment of management position; 11. Approval of the resolution on the amendments to the Articles of Association of the Company; 12. Approval of the resolution on the adjustments to the 2009 budget plan of the Company; 13. Approval of the resolution on the loan from the Export-Import Bank of China.

Second Meeting of Board of Directors 1. Approval of the 2009 ﬁ rst quarterly report of the Company submitted by the 29 April 2009 management, and authorised the secretary to the Board to disclose such pursuant to supervisory requirements; 2. Approval of the resolution on the loan of US$3.6 billion; 3. Approval of the resolution on the amendments of the Rules of Procedure of the Audit Committee; 4. Approval of the resolution on the appointment of President.

Th ird Meeting of Board of Directors 1. Approval of the reviewed 2009 interim ﬁ nancial report of the Company; 28 August 2009 2. Approval of the resolution on the 2009 interim results announcement; 3. Approval of the 2008 assessment result of the grantees of the share appreciation rights plan and the assessing standard for 2009.

Fourth Meeting of Board of Directors 1. Approval of the 2009 third quarterly report; 28 October 2009 2. Approval of the resolution on the provision of guarantee for a jointly-controlled entity of the Company; 3. Approval of the resolution on the budget of an equipment construction project; 4. Approval of the resolution on certain amendments to the Investment and Budgeting Management System.

Fift h Meeting of Board of Directors 1. Approval of the 2010 budget plan of the Company; 9 December 2009 2. Approval of the resolution on authorizing Company management to enter into certain credit facility agreements.

48 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Meeting Resolutions approved

Resolutions approved by fax in 2009 [COSL BOD motion (2009) No.1] Approval of the resolution regarding to propose a related party transaction to the General Meeting (5 January)

[COSL BOD motion (2009) No.2] Approval of the resolution of the appointment of CEO (2 March)

[COSL BOD motion (2009) No.3] Approval of the resolution of a loan from commercial bank (4 March)

[COSL BOD motion (2009) No.20] Approval of the resolution regarding to the work allocation of the members of the Board (29 June)

[COSL BOD motion (2009) No.21] Approval of the resolution on the loan from a related party (12 June)

[COSL BOD motion (2009) No.22] Approval of the resolution on an equipment construction project (5 August)

[COSL BOD motion (2009) No.23] Approval of the resolution on the publishing of an announcement due to the impairment of acquired assets (21 August).

Th e Board of Directors China Oilﬁ eld Services Limited 30 March 2010

Annual Report 2009 49 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

2. Independence of the Company from its Controlling Shareholder on the Operations, Personnel, Assets, Structure and Finance Th e Company and its controlling shareholder are well segregated on the operations, personnel, assets, structure and ﬁ nance.

3. Implementation and Enhancement of the Company’s Internal Control In accordance of the related requirement of the laws and regulations, together with the actual situation of the Company’s operation and management as well as the review conclusion of the internal control at the end of 2008, the Company formed the COSL 12 major internal control systems with management features and established a comprehensive internal control system. And with the risk analysis and responding mechanism, the subordinate units further speciﬁ cally formulated the operational rules in 2009. Th ere were 232 newly added and amended items of internal control system, which kept in line with the business development of the Company and strengthened the regulation of the Company.

Th e completion and implementation of the internal control system of the COSL 12 major systems indicates a further step of the Company towards a ﬁ rst class international oilﬁ eld service company. Th e Company enjoys a more standardised governance, a more transparent management, with outstanding results.

Th rough the enhanced internal control system, COSL strengthens its governance and control standards and further perfects its governing structure and internal control system, which facilitates the development of COSL.

4. Disclosure by the Company of the self assessment report of the Board of Directors on internal control Th e Board approved the Self Assessment Report on Internal Control of the Company on 30 March 2010. Ernst & Young Hua Ming, the auditor of the Company, has issued a report on internal control. For details of the report, please refer to our website or the website of the Shanghai Stock Exchange.

5. Particulars of establishment and implementation of evaluation and incentive plan for senior offi cers during the reporting period On 22 November 2006, the share appreciation rights plan for senior offi cers of COSL (the “SAR Plan”) was approved by the shareholders by the way of voting in the second Extraordinary General Meeting of 2006 which is a middle to long term incentive programme for 7 senior offi cers. Th e SAR Plan became eff ective on 22 November 2006 and the grant of the share appreciation rights was completed and became eff ective on 6 June 2007 when the targeted senior offi cers agreed and signed individual performance contracts with the Company, with a grant price of HK$4.09. According to the plan, the targeted senior offi cers’ exercisable number of share appreciation rights was connected with their performance target to be reviewed comprehensively within two years from the eff ective date, so as to confi rm the exercise ratio. Th e share appreciation rights have a vesting period of two years, and the senior offi cers can exercise their rights in four equal batches beginning year 3, 4, 5 and 6 from the approval date of the SAR Plan.

Th e SAR Plan further provides that if the gain from exercising the share appreciation rights exceeds HK$0.99 per share in any one year, the excess gain should be calculated using the following percentage:

(1) between HK$0.99 and HK$1.50, at 50%;

(2) between HK$1.51 and HK$2.00, at 30%;

(3) between HK$2.01 and HK$3.00, at 20%; and

(4) HK$3.01 or above, at 15%.

Th e total amount paid in cash as a result of exercising the SAR shall not exceed 10% of the net proﬁ t of the Company of the year. Cash payments from exercising share appreciation rights must be deposited into personal accounts of related grantees, with no less than 20% of such cash payment shall only be withdrawn aft er qualiﬁ ed upon expiry of employment term with the Company.

50 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

As of 31 December 2009, share appreciation rights granted to senior management of the Company are as follows:

Value (RMB) At At Shares 1 January 31 December Title Name granted 2009 Addition Lapse 2009

Former President Yuan Guangyu* and CEO 964,200 shares 1,402,171 111,368 (233,734) 1,279,805 President Li Yong 704,300 shares 1,024,216 81,349 (170,731) 934,834 Executive Vice President Zhong Hua and CFO 704,300 shares 1,024,216 81,349 (170,731) 934,834 Executive Vice President, Chen Weidong CSO and Board Secretary 704,300 shares 1,024,216 81,349 (170,731) 934,834 Senior Vice President Li Xunke 656,900 shares 955,285 75,875 (159,241) 871,919 Former Staﬀ Supervisor Tang Daizhi* 656,900 shares 281,774 – – 281,774 Vice President Xu Xiongfei 609,100 shares 885,772 70,353 (147,653) 808,472

5,000,000 shares 6,597,650 501,643 (1,052,821) 6,046,472

Note *: During 2009, Yuan Guangyu resigned as the President and CEO of the Company. During 2007, Mr. Tang Daizhi resigned as the Staﬀ Supervisor of the Company. According to the terms of the SAR Plan, they were entitled to their beneﬁ ts up to the date of their resignation.

As of 31 December 2009, share appreciation rights plan of the Company has recognised the payable staﬀ remuneration of RMB6,046,472.

Pursuant to the Performance Management Measures for SAR Plan, the Remuneration Committee of the Board conducted a comprehensive assessment of the performance of incentive targets achieved in 2006 and 2007 during 2008. All of the incentive targets passed the assessment. During the reporting period, the Remuneration Committee of the Board conducted 2008 annual assessment of performance of incentive targets and again all of them passed the assessment.

As approved by the Board, the fi rst exercising date for share appreciation rights granted pursuant to the approval of Shareholders’ General Meeting on 22 November 2006 shall be 22 November 2008. Aff ected by the fi nancial crisis, the fi rst exercise price was lower than the granted price and no grantee should exercise the right. Th e second exercising will be carried out strictly following the SAR Plan reviewed by SASAC. Th e proposal of exercising of such SAR Plan should be submitted to CNOOC and is subject to the approval of SASAC following the submission by CNOOC. If there are any new comments on the second exercising by SASAC, the Company will disclose such information in a timely manner.

Annual Report 2009 51 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

8. Summary of General Meetings I. Annual General Meeting Th e Company convened its annual general meeting for 2008 on 3 June 2009. Results announcement for the annual general meeting was published on the China Securities Journal, the Shanghai Securities News and the Securities Times on 4 June 2009.

Th e Annual General Meeting of 2008 was held on 3 June 2009 at the Room 504, CNOOC Plaza, 25 Chaoyangmen North Avenue, Docheng District, Beijing. The present shareholders and proxies attended the meeting represented 3,087,875,453 shares which amounted to 68.69% of total number of shares of the Company. Th e Annual General Meeting was chaired by Simon X. Jiang, the independent non-executive director of the Company. The Annual General Meeting considered and passed by site and Internet poll the following resolutions:

As ordinary resolutions

1. Th e audited ﬁ nancial statements and the auditor’s report for the year ended 31 December 2008 were approved;

2. Th e proﬁ t distribution and allocation of dividends for 2008 was approved;

3. Th e director’s report for the year ended 31 December 2008 was approved;

4. Th e report of the Supervisory Committee for the year ended 31 December 2008 was approved;

5. Th e re-appointment of Ernst & Young Hua Ming and Ernst & Young as the domestic and foreign auditors for 2009 respectively was approved and the Board was authorised to determine their remunerations;

6. Fu Chengyu, Liu Jian, Li Yong and Tsui Yiu Wa were elected as directors of the Company;

7. Zhu Leibin and Wang Zhile were elected as supervisors of the Company.

8. It was approved that the Company may send or supply Corporate Communications to its Shareholders (in relation to whom the conditions set out below are met) by making such Corporate Communications available on the Company’s own website, and any director of the Company was authorized for and on behalf of the Company to sign all such documents and/or do all such things and act as the director may consider necessary or expedient and in the interest of the Company for the purpose of eﬀ ecting or otherwise in connection with the Company’s proposed communication with its holders of H Shares through the Company’s website. “Corporate Communication(s)” means any document issued or to be issued by the Company for the information or action of holders of any of its securities, including but not limited to: (a) directors’ report, annual report, annual accounts together with auditors’ report and summary of ﬁ nancial report; (b) interim report and summary of interim report; (c) notices of meetings; (d) listing documents; (e) circulars; and (f) proxy forms.

As special resolutions

1. To authorize the Board to issue H shares not more than 20% of the total issued H shares within 12 months, this authorization shall be eﬀ ective within 12 months from the date of approval by the Shareholders’ General Meeting.

2. Th e resolution regarding the amendments to the Articles of Association of China Oilﬁ eld Services Limited was approved.

768,100 votes were against the above item 2 of the general resolutions (0.02% of total number of votes); 36,801,500 votes were against the item 5 of the general resolutions (1.19% of total number of votes); among the item 6 of the general resolutions, 3,008,611 votes were against electing Fu Chengyu as a director (0.1% of total number of votes), 2,408,611 votes were against electing Liu Jian as a director

52 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(0.08% of total number of votes), 2,408,611 votes were against electing Li Yong as a director (0.08% of total number of votes), and 19,490,500 votes were against electing Tsui Yiu Wa as a director (0.63% of total number of votes); among the item 7 of the general resolutions, 20,938,000 votes were against electing Zhu Liebin as a supervisor (0.68% of total number of votes); 19,490,500 votes were against electing Wang Zhile as a director (0.64% of total number of votes); 300,100 votes were against the above item 8 of the general resolutions (0.01% of total number of votes).

Regarding the special resolution, 378,209,881 votes were against were against the item 1 of the special resolutions (12.25% of the total number of votes); 322,000 votes were against the item 2 of the special resolutions (0.01% of the total number of votes). Th e rest of the resolutions were approved unanimously.

II. Particulars of Extraordinary General Meetings (I) Introduction

Th e fi rst Extraordinary General Meeting:

Th e Company convened the ﬁ rst Extraordinary General Meeting for 2009 on 13 February 2009. Results announcement for the extraordinary general meeting was published on the China Securities Journal, the Shanghai Securities News, and the Securities Times on 14 February 2009.

(II) Details

Th e fi rst Extraordinary General Meeting in 2009

Th e ﬁ rst Extraordinary General Meeting in 2009 was held on 13 February 2009 at Conference Room 504, CNOOC Plaza, NO.25 Chaoyangmen North Avenue, Dongcheng District, Beijing. Th e present shareholders and proxies totally represented 3,109,076,155 shares which amounted to 69.16% of total number of shares of the Company. Th e extraordinary general meeting was chaired by Mr. Gordon C.K. Kwong, the independent non-executive director of the Company:

1. An On-site poll was used in this meeting to approve “COSL 922-924 Jack-up Rig Building Agreement” (“Building Agreement”) that the Company and Oﬀ shore Oil Engineering Co., Limited (“CNOOC Engineering”) signed on 19 December 2008 for “CNOOC Engineering” to build three jack-up rigs for the Company, and to authorize the directors of the Company (whether acting jointly or severally or through the committee) to execute and complete (or in respect of the execution or completion of) the “Building Agreement” and all relevant transactions, sign all the documents and/or carry out all necessary, proper and appropriate actions that they think ﬁ t.

China National Oﬀ shore Oil Corporation, a connected shareholder abstained from voting, the number of shares participated in the voting was 648,608,155, of which 644,584,155 voted for the proposal (of which A shares were 68,886,561, H shares were 575,697,594), representing 99.38% of the shareholders with voting rights in attendance; the number of shares which voted against the proposal was 4,024,000 (of which A shares were 0, H shares were 4,024,000), representing 0.62% of the shareholders with voting rights in attendance. Since the shareholders attending in person or by proxy and voting for the proposal held 99.38% of the shares with voting rights, which was more than one half, this resolution was oﬃ cially passed as ordinary resolution.

2. Th e meeting voted by way of on-site poll on “Appraisal report on the results of 2006 – 2007 China Oilﬁ eld Services Ltd Share Appreciation Rights Scheme”.

Th e number of shares participated in the voting was 3,101,125,466, of which 2,850,791,749 voted for the proposal (of which A shares were 2,529,354,561, H shares were 321,437,188), representing 91.93% of the shareholders with voting rights in attendance; the number of shares which voted against the proposal was 250,333,717 (of which A shares were 0, H shares were 250,333,717), representing 8.07% of the shareholders with voting rights in attendance. Since the shareholders attending in person or by proxy and voting for the proposal held 91.93% of the shares with voting rights, which was more than one half, this resolution was oﬃ cially passed as ordinary resolution.

Annual Report 2009 53 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

9. Social Responsibility Report

In 2009, COSL adopted active measures to response to the various negative factors brought by the financial crisis. We actively explored domestic and overseas markets, endeavoured to raise economic returns, optimised internal control system and strengthened risk control. We implemented the safety production responsibility system, further strengthened safety monitoring and management, eliminated safety potential risks and prevented major incident. We moved forward energy saving and emission reduction and environmental protection. We paid attention to the health of staff, improved the remuneration system, protected the employees’ rights. We showed concern for public affairs, participated in poverty relief work, donated funds and provided scholarship. While maintaining the steady development of the Company, we seriously performed social responsibilities, actively built up a harmonious company and achieved the sustainable development of the Company.

In 2009, we were on the list of the Top 100 Companies Performing Social Responsibilities and we ranked among the top 20th, and was also awarded the “2009 Chinese Companies Performing Social Responsibilities – Special Prize”.

1. Stable operation In 2009 COSL had steady development amid the depression in the sector. In accordance with the Hong Kong Financial Reporting Standards, we achieved operating revenue of RMB17,879 million, operating profit of RMB4,468 million and net profit of RMB3,135 million for the year, or a year-on-year growth of 47.2%, 23.1% and 1.1% respectively.

2. Corporate governance We set up a full set of internal control system. Through effectively implementing such system, we discovered operational weaknesses in time and took remedies. This will effectively ensure sound and rapid development of the Company. In 2009, the Company did not make any significant wrong decision, constitute any significant breach of discipline and law and cause any significant accident related to safety and environmental protection.

(1) Internal audit

We have set up and put in place a full set of internal audit management system. Regarding to large scale equipment construction projects, we applied procedural audit and final settlement audit; as for the implementation of economic accountability system in direct subsidiaries, the internal audit is carried out every two years; and whenever a general manager of a subsidiary quits, the internal audit will be carried out immediately on his departure.

Through the audit, we have found out in time various problems at work, which has provided a lot of detailed and practical information upon which company decisions can be based. At the same time, we have corrected and ratified in time the problems in the management and operating processes, which has enhanced our operating efficiency and management standard.

(2) Total risk management

Since its establishment, the Company has paid great attention to risk management. We work hard to enhance our ability to eliminate risks, improve the risk elimination mechanism, and standardize professional risk management practice.

Management workflow was further improved, a review on each workflow was carried out, the risk items were reconfirmed and partial adjustments of some control points/key control points were made in 2009. We managed to have all workflows under the constraints of the system; the holders of all control points and key control points perform their controlling functions in the respective workplaces; all

54 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

the risk items identified were put under the management of respective departments or staff; we set up a risk identification system with the corresponding alert, prevention and handling, and formulated measures to cope with risks.

(3) Anti-corruption

The contents of the establishment of an anti-corruption system of the Company include the following areas: firstly, group monitoring, for example publishing the offense reporting phone number and email address on the website, these cases are handled by a special personnel; secondly, to document the systems, up to the present moment, we have formulated 18 systems in incorruptible practice education, punishment of bribery, handling of rule violation etc; thirdly, a responsibility system of briefings and reminders by managerial staff of all levels to their subordinates, this is administered in such a way that one level of staff communicates with the underling level of staff; fourthly, important/key staff incorruptible practice commitment system, these employees must sign “Incorruptible Practice Responsibility Statement” with the Company each year, when they sign important business contracts, they must also sign a “Incorruptible Practice Memorandum”.

3. Safety and environmental protection We always uphold the management guidelines of “Safety first, prevention is fundamental, respect the nature, care for the environment”. The SMS/QHSE system were implemented in full scale for management in the safety and environmental protection domains. We pay attention to environmental protection while safeguarding the safety of various production operation. In 2009, our QHSE management objective for the year was achieved.

Completion status of QHSE management objectives for 2009

Serial No. QHSE objectives Results of control

1 Zero major incident of responsibility involving No major incident of responsibility involving death of personnel death of personnel occurred 2 Zero incident of responsibility involving oil spillage No incident of responsibility involving oil spillage of medium scale and above of medium scale and above occurred 3 Zero major incident of responsibility involving operation No major incident of responsibility involving operation and and production facilities production facilities occurred 4 Zero major incident of responsibility No major incident of responsibility involving quality involving quality issues issues occurred 5 OSHA recordable incident rate less than 0.55 0.23

(1) Enhancement of safety management

We continue to improve the safety management system and pay attention to the implementation results. With effective measures like effective risk control, intensive implementation of investigation and ratification of hidden risks etc, the incident rate has decreased each year, and there is a remarkable rise in safety management standard.

Effective running of the SMS/QHSE system. In 2009, the SMS/ QHSE system were implemented in the business segments whereby they were reviewed by respective supervisory departments; the QHSE system in each segment continued to run effectively and successfully passed DNV ’s annual review, and obtained the QHSE management system certificate issued by DNV; the SMS management system of the geophysical services segment, drilling services segment, marine support and transportation services segment continued to be improved and successfully passed the annual review of the supervisory authorities, and fleets and vessels of segments above successfully passed the SMC review.

Annual Report 2009 55 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Standardization of contractor management. We are very concern about the safety production management of contractors. In 2009 we strengthened the review, and implemented review of subcontractors for large scale equipment construction and maintenance projects.

Enhancement of emergency management. We upgraded and amended the “Regulations for Emergency Management of China Oilfield Services Limited V5.2”, arranged and improved the emergency response procedures and emergency budgets of all subsidiaries, improved the amendment of the emergency response procedures and emergency budgets of overseas branches, renewed the emergency medical assistance agreement covering all overseas employees with International SOS. In 2009, we made 5 rehearsals including level one joint emergency rehearsal of anti-pirate attack and ship abandoning and level two joint emergency rehearsal of human injury on board and on land; all business segments of the Company stuck to the emergency rehearsal plan formulated at the beginning of the year.

Strengthening of monitoring and inspection. In 2009 we conducted inspection for all onshore departments, inspection of some marine platforms/vessels, and specific inspection of the management of hazardous chemical products, oil tankers, chemical carriers and geophysical vessels. We sent out notices calling for ratification of all existing problems or hidden risks to respective business departments, and followed up on the status of ratification. At the same time, we also carried out a safety assessment of the residential premises and work sites of all overseas projects, and made a safety review of the land drilling rig project in Libya.

(2) Emphasis on environmental protection

We have been complying with our ideology of “Respect the nature, care for the environment” thoroughly, and we strictly abide by international covenants, international and domestic laws and regulations and various requirements concerning environmental protection in various business activities. We try hard to minimize the damage to the environment, and actively build up ourselves as a environmental friendly enterprise.

Constant improvement and effective execution of management system. In order to achieve sustainable development of the Company, the relevant divisions of the Company included environmental protection into the QHSE system according to the requirements of the environmental management standard of ISO14001, and was granted the certificate. At the same time, all divisions with ownership of vessels set up and implemented safety and pollution prevention systems according to the requirements of the “International Regulations for Safety and Pollution Prevention Management”. With training and serious implementation of various measures for environmental protection management, in 2009 the Company did not record any environmental pollution incident.

Control of pollutant discharge is the focus of environmental protection work. The pollutant of all COSL’s production work sites is recycled or discharged within limits in accordance with the regulations. Articles like used selenium drums, batteries etc from all workplaces are recycled. The Company signed different types of agreements on hazardous waste, industrial and household trash, office rubbish and sewage treatment with local environmental protection authorities at all zones to ensure the legal handling of pollutant and waste.

Monitoring of key environmental protection tasks of drilling rigs and motor vessels. COSL implemented a regular reporting system for the recycling and discharge of pollutant, strictly carried out the system of “zero discharge” in waters, conducted regular repair and maintenance of environmental protection equipment and machinery, and adopted active measures to reduce the generation of waste grease, waste water and garbage volume as far as possible. In order to prevent marine pollution, we imported specialized ancillary facilities to carry out recycling of mud from drilling rigs, recycling of rock debris, re-injection treatment; in order protect marine living things, all vessels are painted with high-quality environmental friendly paint.

56 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(3) Furtherance of energy saving and emission reduction.

We steadily moved forward our 2009 energy saving and emission reduction tasks with focus on economic development with low carbon to bring the concepts of green, cleanliness, low carbon and circular economy into our whole production and all investment projects. This ensured the achievement of our various energy saving and emission reduction objectives, and we obtained transitional results and made a firm step towards building up ourselves as a resource saving and environmental friendly company.

Improvement of company structure and relevant systems. In 2009, we had full time and part time managerial staff at all levels, we clarified their job duties and implemented an accountability system for each level. We revised and set up systems/procedures related to energy saving and emission reduction. We also set up an appraisal system on energy saving and emission reduction.

Energy audit advancing, implementation of environment monitoring. We conducted an energy audit of the drilling services segment, and carried out the monitoring of the environment of COSL 931 and COSL 941 drilling rigs, and made systematic appraisal of subsidiaries on energy saving and emission reduction.

Reasonable arrangements for production, changes in operation mode. In the drilling rigs,the number of electric generators were adjusted in a timely manner according to the loading capacity of the drills to reduce the warming-up time of electric generators so that there was an apparent decrease in diesel consumption. We designed and built the “Marine System Mooring Drum System” which changed the low speed navigation mode of utility vessels waiting for new assignments in deep waters to the system mooring mode, and achieved remarkable results in fuel savings.

Facilities upgrade and transformation, energy saving and emission reduction technology. In 2009 we made injection of funds to upgrade some electric generators and implemented projects such as “Optimized professional hydraulic pressure pump control system” and “Residual heat of fresh water of main engine for heating water of boiler” etc, which achieved apparent energy saving results of saving 1,196.94 tones consumption of coal aggregately.

4. Care for staff Employees are the most valuable wealth of our Company. We always follow the ideology of “Human based, health protection”to respect and protect employees’ legitimate rights, create good conditions for training and growth, adopt proactive measures to protect the health of employees, offered relief and helped our staff who were in difficulties, in order to achieve a harmonious win-win situation for the Company and employees.

(1) Labour rights protection

We strictly abided by the relevant laws and regulations and systems such as the “Labour Law of the People’s Republic of China”, “Labour Contract Law of the People’s Republic of China” which protected the legitimate rights of employees. Employment contracts were negotiated and entered into on an equitable and voluntary basis; at the same time, we continued to improve various compensation welfare and insurance systems; besides basic social insurance such as medical insurance, pension, insurance for work-related injury and unemployment benefits, etc., and housing fund on behalf of employees pursuant to the regulations, we also set up supplementary medical insurance and insurance for personal accident and injury to provide reliable protection for employees.

We strengthened the power of the labour union to provide services to staff through setting up a system of Association of Employee Representatives which allowed staff to participate in the decision-making process, management and supervision in a democratic manner, and to protect their rights to know, to choose and to complain.

Annual Report 2009 57 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

(2) Staff training enhancement

All training programmes that we held had specific targets resulting in substantive results, through which improved the knowledge and working skills of our labour.

In order to speed up the exploration of overseas markets and enhance our ability to operate on an international scale, we successively organized lectures and cross-cultural management training on “North European cultural and business management model” targeting managerial staff so as to improve the understanding of Chinese and western culture, enhance ability in cross- cultural management. Meanwhile, we strengthened the training of overseas employees. One one hand, the local subsidiary/branch taught their staff technical skills. On the other hand, we systematically arranged study tours for them to visit China, attending our corporate training in order to foster the cultural integration.

The following is the statistics of the training held in 2009:

Managerial skill category: 3035 person-time Technical category: 6986 person-time Operational category: 4560 person-time

(3) Emphasis on staff development

We set up clear career development path for staff; we have set up a scale of job standards for different positions whereby any staff who can attain the standard of a certain grade can be promoted to work at that grade regardless his education and seniority. This method will allow staff to know their development direction clearly and have targets to enhance their own capabilities.

Through extensive work competition and skill competition among a large number of employees, we enhanced employees’ passion for learning techniques and improving skills, this speeded up the nurturing of technical talents. In 2009, we successfully organized professional skill contest at the Company level and actively engaged in the professional skill contest held by CNOOC. These two contests fuelled a climax of “Learn your techniques, practise your skills, love your industry”, created a good atmosphere of “Respect techniques, respect innovation, respect talents”, and selected some technical talents with good techniques and skills. In 2009 Li Xiupeng and altogether 6 employees were awarded the “CNOOC Technical Winner”; Che Yusheng and altogether 4 employees below 35 years old were awarded “CNOOC Work Winner” at the same time.

In 2009, we employed a total of more than 710 fresh graduates from universities, more than 80 mature talents from the society, and the introduction of talented people added fresh blood for the sustainable development of COSL. In addition, COSL actively provided employment opportunities for the society, recruit more than 300 workers in Hebei and Shandong in 2009, so as to relieve local unemployment pressure and actively create job opportunities for society.

(4) Concern for health of employees

We highly stressed on the health of employees and insisted on the guidelines of “Prevention comes first, integration of prevention and treatment”. We paid attention to the execution status of each area of health management while improving various rules and regulations to effectively prevent the occurrence of occupational diseases.

58 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Standardization of inspection of dangerous factors of occupational diseases. We appointed qualified occupational hygiene and medical technological institutes to conduct an appraisal on the dangerous factors of occupational diseases such as noise, dust and radiation in work sites.

Emphasis on health check of staff. In 2009 our staff health check rate reached 99%, and all frontline staff worked with qualified health certificates. Employees who were in contact with dangerous factors of occupational diseases undertook occupational disease health check. We also set up the “Occupational disease file” and “Staff occupational health monitoring file”.

Proper prevention and control of influenza. In order to make proper prevention and control of Type A H1N1 flu in 2009, minimize the harm to the health of our employees, we promulgated the relevant management system, appointed medical and hygiene institutes to inject vaccine of Type A H1N1 flu onto the offshore operation staff, made provisions of body temperature thermometers and the relevant drugs. There was no incident of Type A H1N1 flu in the marine facilities under our management.

During the outbreak of flu, employees who worked overseas could not return home punctually. As such, the leaders of the Company sent consolatory letters to them and visited their families by proxies.

Concern for staff psychological health. In 2009 we hired some members of the Association of Psychological Health, State Professional Psychological Consultant to provide tutorial on psychological health and introduce psychological health knowledge to employees.

(5) Leisure life enrichment of staff

We regularly and irregularly organized a number of wholesome activities for our staff to enhance their physical conditions and enrich their leisure time.

“Soul of the Sea”, a large scale entertainment performance handled by COSL made 15 performances touring in Beijing, Tianjin, Shanghai and Shenzhen, promoted the publicity of the history of development, history of reform and corporate culture of COSL.

In the CNOOC Jingzhi Region Singing Contest Commemorating China’s 60 Years of Foundation, our choir won the first prize with its excellent performance of two songs – “I contribute petroleum to China” and “Under bright sunshine”. At the same time, we actively participated in the Photography Competition – “Love China, Love CNOOC” organized by the News Centre of CNOOC, 7 photos were awarded different prizes while the Company was awarded as the Excellent Organization.

Our 2009 Spring Long Race, annual staff basketball competition and volleyball competition attracted a number of employees to participate; “Read more books, Read good books” a free books giveaway event jointly organized with the Medical Library of the People’s Liberation Army was also welcomed by staff.

We were particularly concerned about the safety of staff beyond their eight hours’ work. In recent years, the number of automobiles increased rapidly, in order to safeguard the road safety of staff, we held safety education activities in various manner to enhance car drivers’ safety awareness and skills.

5. Charity Enterprises are important components of a society. To reciprocate favors back to society is the responsibility of an enterprise, we insist on the harmonious co-existence of company development and social progress. In 2009, while we worked hard to achieve sustainable and healthy development, we actively participated in charity work such as the Hope Project, poverty relief and social rescue programmes urged by a sense of social responsibility and mission. We optimized and regulated the corresponding work flow through the establishment of the “Rules of Charity Committee”.

Annual Report 2009 59 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

(1) Creation of new subsidized construction model

During the course of construction of the Hope Primary School, we adjusted the investment proportion according to the size of schools and their inaccessibility, strictly monitored the quality of construction, constantly increased our subsidy of construction. This type of subsidized construction method is the first of its kind since the creation of the Hope Project twenty years ago, and drew the attention and compliment of China Youth Development Foundation. At present, phase 1 of 7 Hope School in Yunnan was fully completed. The gross construction area was 3853 m2, after the relevant departments of the local government inspected them and granted approval, they were all in use now. The 76 teachers and 2452 children from the mountainous regions officially “bidded farewell” to the dangerous old buildings and moved into the new, spacious and bright classrooms which could resist Grade 8 earthquake.

We continued with the management and support of Hebei Province Mancheng County Xunkuo Hope Primary School and Luanping County Wafang COSL Hope Primary School at the same time. The relevant personnel of the Company irregularly visited Hebei Province Mencheng County Hope Primary School, and donated 6 computers and stationery, providing the necessary condition for online teaching for the school.

During the summer vacations, we arranged 20 excellent teacher representatives of Hope School in Hainan and Yunnan to visit our company, understand our production and operation situations, undergo teaching demonstration training by teachers of superior grade. Our staff donation fund donated over RMB10,000 of books to seven Hope Schools in Yunnan.

In the past few years, our management of construction projects of the 12 Hope School in Hainan and Yunnan received a great compliment from China Youth Development Foundation while China Youth Development Foundation and other charities can take reference from this when implementing subsidy projects, and this served as a demonstration. On 19 November, the Central Committee of the Communist Youth League of China and China Youth Development Foundation held the Seminar of 20th Anniversary of the Hope Project in the People’s Hall, and “Special Contribution Award of the 20th Anniversary of the Hope Project” was awarded to the Company.

(2) Disaster relief

We have over 100 vessels participated in several marine rescues instructed by the rescue centres of various marine bureau. In 2009 we participated in altogether 28 marine rescues, such as using our icebreaking vessels to help fishing boats pass through ice-covered waters, and successfully saved 11 people, helped 65 people to get out of danger. We received several correspondences of compliment from some marine bureau and the relevant departments.

In 2010, the Company will continue the safety culture, intensification of safety management; environmental protection, energy saving and emission reduction; we will actively perform our social responsibilities and continue to move forward our sustainable development.

60 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

10. Directors, Supervisors, Senior Management & Employees I. Conditions of Directors, Supervisors, Senior Management Change in shareholding and remunerations of directors, Supervisors and Senior Management

Whether Total Condition of Share received in Remunerations Appreciation right shareholders’ Number of Number of received from during report period* company shareholding shareholding the Company Excisable or other Commencement and at the beginning at the end Reason during report shares Year end connected Name Position Sex Age expiry of term of year of year of change period (Yuan) (10,000 shares) value (Yuan) company

Fu Chengyu Chairman, Non executive director Male 58 3 Jun. 2009~2 Jun. 2012 20,000 20,000 N/A – – – Yes

Liu Jian Vice Chairman, Executive director Male 51 3 Jun. 2009~2 Jun. 2012 – – N/A 362,954 – – No and CEO

Li Yong Executive director and president Male 46 3 Jun. 2009~2 Jun. 2012 – – N/A 528,923 70.43 934,834 No

Wu Mengfei Non executive director Male 54 27 May 2007~26 May 2010 – – N/A – – – Yes

Gordon C.K. Kwong Independent non executive director Male 60 30 Oct. 2005~ – – N/A 400,000 – – No

Tsui Yiu Wa Independent non executive director Male 60 3 Jun. 2009~2 Jun. 2012 – – N/A 200,000 – – No

Simon X. Jiang Independent non executive director Male 56 27 May 2007~26 May 2010 – – N/A 400,000 – – No

Zhu Liebin Chairman of Supervisory Committee Male 44 3 Jun. 2009~2 Jun. 2012 – – N/A – – – Yes

Yang Jinghong Employee Supervisor Male 45 26 Jul. 2007~25 Jul. 2010 – – N/A 493,032 – – No

Wang Zhile Independent Supervisor Male 61 3 Jun. 2009~2 Jun. 2012 – – N/A 40,000 – – No

Zhong Hua Executive vice president and CFO Male 49 Apr. 2006~ – – N/A 579,212 70.43 934,834 No

Chen Weidong Executive vice president CSO and Male 54 Dec. 2005~ – – N/A 629,698 70.43 934,834 No Secretary of the board

Dong Weiliang Executive vice president and CTO Male 52 Jun. 2007~ – – N/A 700,917 – – No

Li Xunke Senior vice president Male 53 Jun. 2007~ – – N/A 564,070 65.69 871,919 No

Xu Xiongfei Vice president and chairman of Male 48 Jun. 2007~ – – N/A 483,203 60.91 808,472 No Labour Committee

Xiao Guoqing Vice president Male 60 Jun. 2007~ – – N/A 565,269 – – No

Yu Zhanhai Vice president Male 55 Aug. 2007~ – – N/A 582,509 – – No

Total / / / / 20,000 20,000 / 6,529,787 337.89 4,484,894 /

* Details are set out in Corporate Governance V. – Particulars of evaluation on senior officers during the reporting period and establishment and implementation of incentive plan.

Annual Report 2009 61 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Major working experience of directors, Mr. Li Yong supervisors and senior management in the past Chinese, male, born in 1963, five years Executive Director and the Board of Directors President of COSL. Bachelor in Petroleum Engineering, Mr. Li Mr. Fu Chengyu obtained a master degree in Oil Chinese, male, born in 1951, is the Economics from the Scuola E Chairman and a Non-Executive Mattei of Italy in 1989 and an Director of COSL. He received a MBA from Peking University in Bachelor Degree in Geology and 2001. Since April 2009 Mr. Li was a Master Degree in Petroleum an Executive Director and President of COSL. From May 2006 to Engineering from University of April 2009, he has been serving as Executive Director, Executive Southern California in the United Vice President and Chief Operating Officer of COSL. From States, and is a senior economist. October 2005 to May 2006, Mr. Li was Executive Vice President Since November 2003, Mr. Fu has and Chief Operating Officer of the COSL. From 2003 to 2005, Mr. been serving as Chairman and a Non-Executive Director of COSL. Li served as Deputy General Manager of CNOOC (China) Ltd. – Mr. Fu also serves as General Manager of CNOOC, Chairman and Tianjin Branch. He was Director of Drilling and Completion Well Chief Executive Officer of CNOOC Ltd, Chairman of CNOOC of CNOOC Ltd from 1999 to 2003. Between 1993 and 1999, Mr. Finance Co., Ltd. Chairman of Zhonghai Trust Co., Ltd. Mr. Fu Li was Head of Comprehensive Technology Division and Head of was the Deputy General Manager of CNOOC and the President of Well Testing Division of Exploration Department of CNOOC. Mr. CNOOC Ltd. And previously, he also worked in China Offshore Li joined CNOOC in 1984 and had served in various positions, Oil Eastern South China Sea Corporation, Philips Petroleum including Assistant Engineer and Engineer at China Offshore Oil International (Asia Pacific) and joint venture between CNOOC Exploration Project Planning Company, CNOOC Operational and BP Amoco, Chevron, Shell as well as Agip. Mr. Fu has over 31 Department, and has worked in the oil and natural gas industry for years of experience in the oil industry. over 26 years.

Mr. Liu Jian Mr. Wu Mengfei Chinese, male, born in 1958, Chinese, male, born in 1955, a Vice-Chairman, Executive Non-Executive Director of COSL. Director and Chief Executive He received a bachelor degree and Officer of COSL. He graduated a master degree from East China from Huazhong University of Petroleum Institute, and an MBA Science and Technology with a from Massachusetts Institute of Bachelor of Science degree and Technology in the United States. received his MBA degree from Mr. Wu is Chief Accountant of Tianjin University in 2000. Mr. Liu is a senior engineer. Mr. Liu CNOOC and a Non-Executive first joined CNOOC in 1982 and has over 28 years of experience Director of COSL from 1 April 2006. From May 2004 to March in the oil and gas industry. He served as the manager of CNOOC 2006, he was an Executive Director of COSL. Mr. Wu served as Bohai Corporation Oil Production Company, the Deputy General Executive Vice President and Chief Financial Officer of COSL Manager of the Tianjin Branch of CNOOC China Limited, the between July 2002 and March 2006. From September 1999 to General Manager of the Zhanjiang Branch of CNOOC China June 2002, Mr. Wu was Chief Financial Officer and Senior Vice Limited, the Senior Vice President and General Manager of the President of CNOOC Ltd. Mr. Wu joined CNOOC in 1988 as Development and Production Department of CNOOC Limited. Deputy Manager of Financial Planning Department and General Since October 2005, he became the executive vice-president of Manager of the Funds Planning Department until September 1999. CNOOC Limited and was primarily responsible for the offshore In addition, Mr. Wu is Chairman of China Blue Chemical Ltd., oilfield development and production of CNOOC Limited. Mr. Liu Aegon-CNOOC Life Insurance Co., Ltd., CNOOC Insurance Ltd. has been appointed as the Chief Executive Officer of COSL with and CNOOC Investment Co., Ltd. effect from March 2009. In June 2009, Mr. Liu was appointed as Vice-Chairman of COSL. 62 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

& human resources), an assistant director (licensing) and the Mr. Gordon C.K. Kwong general manager (human resources) of the SFC from 1989 to China (Hong Kong) by 1993. Mr. Tsui joined the Hong Kong Stock Exchange in 1994 nationality, male, born in 1949, as an executive director of the finance and operations services an Independent Non-Executive division and became the chief executive from 1997 to July 2000. Director of COSL. He received From 2001 to 2004, he was chairman of the Hong Kong Securities Bachelor Degree in Social Science Institute. He was an adviser and a council member of the Shenzhen from the University of Hong Stock Exchange from July 2001 to June 2002. At present, Mr. Tsui Kong in 1972, and is also a serves as an independent non-executive director of number of fellow member of the Institute of listed companies in Hong Kong and NASDAQ, namely Industrial Chartered Accountants in England and Commercial Bank of China (Asia) Ltd., China Chengtong and the Hong Kong Institute of Certified Public Accountants. Development Group Ltd., COSCO International Holdings Mr. Kwong was a partner of PricewaterhouseCoopers from 1984 Ltd., China Power International Development Ltd., China Blue to 1998. From 1992 to 1997, Mr. Kwong was an independent Chemical Limited, Greentown China Holdings Limited, China Hui member of the Hong Kong Stock Exchange Council. He currently Yuan Juice Holdings Company Limited, Pacific Online Limited, serves as an Independent Non-Executive Director for a number Melco PBL Entertainment (Macau) Limited and ATA Inc. Mr. of Hong Kong listed companies, including COSCO International Tsui is an independent non-executive director of AIG Huatai Fund Holdings Limited, Tianjin Development Holdings Limited, Management Company Limited, Fortis Insurance Company (Asia) Beijing Capital International Airport Company Limited, Frasers Ltd and Fortis Asia Holding Limited. He is also a director and the Property (China) Limited, NWS Holdings Limited, Oriental Patron Chairman of Hong Kong Professional Consultant Association Financial Investments Limited, China Chengtong Development Limited. Group Limited, Global Digital Creations Holdings Limited, Quam Limited, China Power International Development Limited, Dr. Simon X. Jiang Henderson Investment Limited, Henderson Land Development Chinese, male, born in 1953, Co Limited, CITIC 1616 Holdings Limited and Agile Property an Independent Nonexecutive Holdings Limited. Director of COSL. He received a bachelor degree from Beijing Mr. Tsui Yiu Wa Foreign Studies University and China (Hong Kong) by earned Master of Philosophy nationality, male, born in 1949, and Ph. D degrees in Economics an Independent Non-Executive from Cambridge University of Director of COSL. He has more England. He has been elected than 31 years of experience an Independent Nonexecutive in the securities market and Director of COSL since May 2004. From 1998 to 2003, Dr. Jiang financial management. Mr. founded Cyber City Holdings Limited (“CCH”) in Hong Kong Tsui graduated from the that invested in advanced technology and infrastructure projects. University of Tennessee with Subsequent to CCH’s public listing through a merger and a Bachelor of Science degree acquisition exercise in 2001, Dr. Jiang became CCH’s Chairman and a master of engineering degree in industrial engineering. He of Board of Directors. Between 1992 and 1998, he was responsible completed the program for senior managers in government at the for investment and management of pension fund schemes for the John F. Kennedy School of Government at Harvard University. United Nations. Mr. Jiang holds independent directorships in Mr. Tsui served at various international companies, including Hong Kong-listed COSCO International and SPG Land, as well Arthur Andersen & Co and Swire Bottlers Limited, and China as serves as a trustee for Cambridge China Development Fund Light and Power Company Limited for 12 years in relation to and a member of the United Nation’s investment committee. In information technology, financial analysis, corporate planning and addition, Dr. Jiang previously served as Director of Zi Corporation management. He was the general manager (finance, technology of Candia, a NASDAQ-listed company; a consultant of US Capital Group and Senior Associate of the Judge in Institute of Management studies of Cambridge University.

Annual Report 2009 63 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Boards of Supervisors president of COSL Engineering Institute from November 2008 to January 2010. He has been an Employee Supervisor of COSL since Mr. Zhu Liebin July 2007. Mr. Yang was serving as General Manager of Human Chinese, male, born in 1965, a Resources Department of COSL from November 2005 to January Supervisor and the Chairman 2010. Mr. Yang was Deputy General Manager of the Oilfield of Supervisory Committee of Technical Services Division at COSL between September 2002 COSL. He graduated from the and November 2005. From 2001 to 2002, he served as Manager college of industrial management of Human Resources Department of COSL before the Company engineering of China University was restructured as a limited liability entity. Mr. Yang served as of Petroleum (East China) and Manager of Department of Health, Safety and Environmental obtained a bachelor’s degree in Protection and Manager of Human Resources Department of technology and engineering in China Offshore Oil Northern Drilling Company from 1995 and 1988. Mr. Zhu graduated from the 2001. From 1984 to 1994, he served as a team leader of Bohai China University of Petroleum drilling rig No. 5 of Bohai Drilling Company and Officer of (Beijing) with a Master degree in Engineering in 1999. Mr. Zhu Department of Operational Safety and Environmental Protection. is a senior economist and a registered senior risk analyst. Since He has been working in the petroleum and natural gas industry for June 2009, he has been the Chairman and a supervisor of the over 25 years. Board of Supervisors of COSL. Since May 2009, Mr. Zhu has been appointed as Vice Chairman of Discipline Inspection Committee Mr. Wang Zhile and General Manager of Auditing & Supervision Department of Chinese, male, born in 1948, CNOOC. Since March 2009, he has been the Chairman of the an Independent Supervisor of Board of Supervisors of China Ocean Oilfields Services (HK) Ltd. COSL, a master degree holder Mr. Zhu has been the Chairman of the Board of Supervisors of and a research fellow. From 1982 CNOOC Energy Technology & Services Limited since July 2008. to 1992, Mr. Wang had taught at He has been appointed as the General Manager of Auditing & Renmin University of China as Supervision Department of CNOOC since June 2007. From August lecturer and associate professor 2005 to June 2007, Mr. Zhu was the Deputy General Manger of consecutively for programmes the Tianjin Branch of CNOOC China Limited. From September such as German Modernisation, 2001 to August 2005, Mr. Zhu was the Manager of the Human Swiss Modernisation, Modern Resources Department of CNOOC. From May 1999 to September History of Science and Technology 2001, Mr. Zhu served as the Manager of the Labour Department of and Modern World History. He studied German and European CNOOC Southeast Asia Limited and manager of Base Company in Economic History, Business History and Modernisation History Shekou. From September 1989 to May 1999, he was appointed as at Bielefeld University, Germany, Deutsches Museum and the assistant to the human resources department, head of human University of Bern, Switzerland, from 1985 to 1988. From 1992 to resources department and the manager of the human resources 2008, he had been a researcher (professor) and supervisor of the department of CNOOC Southeast Asia Limited. Mr. Zhu first multinational enterprise research centre at International Trade joined CNOOC in August 1988 and has over 22 years of experience and Economic Cooperation Research School of MOFTEC. He in the oil and gas industry. was also a committee member of State Industrial Policy Advisory Commission, Vice Chairman of Foreign Investment Committee of Investment Association of China, Contract Research Fellow of Foreign Trade and International Finance Research Center Mr. Yang Jinghong of Chinese Academy of Social Sciences and Contract Research Chinese, male, born in 1964, an Fellow of China Society of Economic Reform, as well as Part- Employee Supervisor of COSL. time Professor at institutes including Nankai University and He received a Bachelor Degree Shenzhen Polytechnic. He was granted Certificate for Specialist of Engineering in Drilling with Outstanding Contribution to the State by the State Council Engineering from Jianghan and is entitled to special government allowance. Since 2008, he Petroleum Institute. In 2008, has been a research fellow at Research Institute of the Ministry Mr. Yang received a master of Commerce, Head of Beijing New-century Academy on degree in the Executive Master Transnational Corporations and a research fellow at China Center of Business Administration of International Economic Exchanges. He has been an independent programme at China Europe director of SGSB since June 2005. Since June 2009, he has been International Business School. appointed as an Independent Supervisor of COSL. Since January 2010, he has been the General Manager of Geophysical Services Division of COSL. Mr. Yang was the

64 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Biographies of Company’s Senior Management Mr. Chen Weidong Chinese, male, was born in 1955, Mr. Liu Jian Executive Vice President and Please refer to Biographies of Secretary of Board of Directors, Directors. Chief Strategy Officer of COSL. Bachelor in Geophysical Exploration, and received an MBA from Peking University in July 2001. He graduated from China University of Political Science and Law with a master diploma in July 2005. He has been Executive Vice President of COSL and Secretary of Board of Directors, as well as Chief Strategy Officer since April 2006. He was Vice President Mr. Li Yong of COSL and Secretary of Board of Directors from September Please refer to Biographies of 2002 to April 2006. From December 2001 to September 2002, Directors. he was Deputy General Manager of COSL before the Company was restructured into a limited liability entity. He served as General Manager of China Offshore Geophysical Exploration Company from September 1999 to December 2001. From May 1998 to September 1999, he was Deputy Manager of Geophysical Exploration Department of CNOOC. He joined CNOOC in 1982 and has over 28 years of experience in the Offshore oil and natural gas industry.

Mr. Zhong Hua Mr. Dong Weiliang Chinese, male, was born in Chinese, male, was born in 1957, 1960, Executive Vice President Executive Vice President of COSL, and Chief Financial Officer Bachelor in Petroleum Geology of of COSL. He graduated from Geological Department. Mr. Dong Southwest Petroleum Institute, has been Executive Vice President with a bachelor’s degree in Oil of COSL since June 2007. He Exploitation. He received a served as General Manager master’s degree in Petroleum of Technology Development Engineering from Heriot- Department of CNOOC between Watt University in the United July 2003 and June 2007. He Kingdom in 1988. From 1985 to 1987, he received staff training subsequently held the position from Expro in United Kingdom. From 2005, he was Vice of CNOOC Research Center President, Executive Vice President, Executive Vice President Director from May 2001 to July 2003. Between April 1999 and May and Chief Financial Officer of COSL. He was General Manager 2001, Mr. Dong was Deputy General Manager at CNOOC China of the Administration Department of CNOOC Ltd, and General Limited – Zhanjiang Branch Company Limited. Mr. Dong had Manager of Development and Planning Department of CNOOC held a number of positions in China Offshore Oil Nanhai West Ltd from 1999-2005. From 1982-1999, he was assistant engineer, Corporation, including Chief Geologist from September 1996 to engineer, deputy Manager of Oilfield Optimization Co. of China April 1999, President of Research Institute of Exploration and Offshore Oil Nanhai West Corporation, and Manager of Wei 10-3 Development Science from May 1994 to September 1996, Vice Mine of China Offshore Oil Nanhai West Corporation, a Director President of Research Institute of Exploration and Development of CNOOC Indonesia Project, Supervisor of Testing of Yai 21- Science from May 1993 to May 1994, Assistant and Group Leader 1-3 Well Project, Deputy Manager of Drilling and Exploration in Research Institute from 1982 to 1993. Mr. Dong has over 28 Department and Manager of Technology Development years of working experience in the oil and natural gas industry. Department, Manager of Administration Department of China Offshore Oil Nanhai West Corporation. He joined CNOOC in 1982, and has been working in the petroleum and natural gas industry for over 28 years.

Annual Report 2009 65 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Mr. Li Xunke Mr. Xiao Guoqing Chinese, male, was born in Chinese, male, was born in 1949, 1956, Senior Vice President. Vice President of COSL, MBA, He graduated from Southwest Bachelor in Oil Exploitation. He Petroleum Institute with a was the Vice President of COSL bachelor degree in Drilling since June 2007. He served as Engineering. He was appointed Assistant to President of COSL Senior Vice President of COSL from December 2004 to June since June 2007, and was Vice 2007. He was General Manager President of COSL between of COSL’s Tianjin Branch September 2002 and June 2007. from September 2002 to December 2004. From January 2002 to Mr. Li served as Deputy General Manager of COSL between September 2002, he was Deputy General Manager of the Tianjin December 2001 and September 2002 before the Company Branch of COSL before the Company was restructured into a restructured into a limited liability entity. He was Deputy General limited liability entity. Between 1993 and 2001 he was Manager Manager of China Offshore Oil Southern Drilling Company of Petrotech Services, CNOOC (Tanggu). From 1992 to 1993, he between January 1995 and December 2001. Between May 1991 served as Manager of Oil Testing Company of Bohai Oil Company. and December 1994, Mr. Li served as Deputy General Manager He worked in Bohai Oil Corporation as a technician from 1976 to of China Offshore Oil Nanhai West Drilling Company. He had 1992. Between 1971 and 1972, he served as a worker for Offshore held a number of positions of China Offshore Oil Nanhai West Oil Command Department. Mr. Xiao has over 38 years of Corporation, including Manager of Nanhai platforms No. 2 and No. 5 between August 1987 and April 1991 and Deputy Manager of experience in the oil and natural gas industry. Nanhai No. 4, No. 1 and No. 2 between March 1986 and July 1987. He joined CNOOC in 1982 and has over 28 years of experience in Mr. Yu Zhanhai the oil and natural gas industry. Chinese, male, was born in 1954, Vice President of COSL, Bachelor Mr. Xu Xiongfei in Geophysics. He was a Vice Chinese, male, was born in 1961, President of COSL since August Vice President of COSL, EMBA, 2007. He was General Manager CSERM. He is Vice President of of Geophysical Services Division the Company since June 2007. He of COSL from September 2002 has been serving as Chairman of to August 2007. Between January Labour Committee of COSL since October 2005. From September and September 2002, he served as 2002 to October 2005, Mr. Xu General Manager of Geophysical Services Department of COSL was General Manager of Human before the Company was restructured into a limited liability entity. Resources Department of COSL. Mr. Yu was Deputy General Manager of China Offshore Oil From December 2001 to September 2002, he served as General Geophysical Corporation from January 1994 to December 2001. Manager of Human Resources Department of COSL before the He also held various positions in Bohai Oil Geophysics Company, Company was restructured into a limited liability entity. He served including Manager from September 1993 to January 1994 and as Party Committee Secretary and Discipline Committee Secretary Deputy Manager from November 1992 to August 1993. Between of China Offshore Oil Northern Drilling Company between October 1982 and 1992, Mr. Yu had held various positions in Geophysical 2000 and December 2001. From 1995 to 2000, Mr. Xu was Director Fleet of CNOOC, including technician, assistant engineer, of Party Office and Manager of Human Resources Department at engineer, manager of the fleet and department head of operation China Offshore Oil Northern Drilling Company. He had held a department. From 1979 to 1982, he worked in the geophysical number of positions in Bohai Oil Corporation, including Secretary service fleet of Offshore Oil Exploration Bureau. Mr. Yu has over and Deputy Director of Administration Office from 1993 to 1995, 30 years of experience in the oil and natural gas industry. Party branch secretary of Bohai Platform No. 12 from 1991 to 1993, between 1977 and 1991, driller, mechanic, electrician and secretary in Team 32220 at Drilling Department, Bohai platform No. 8, and Party Committee Office. Mr. Xu has over 32 years of experience in the oil and natural gas industry.

66 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

II. Work Positions in the Company of Shareholders

Commencement Termination Remunerations and Name Name of Shareholder Position of term of term allowances received

Fu Chengyu China National Offshore Oil Corporation General Manager October 2003 Until now Yes Wu Mengfei China National Offshore Oil Corporation Chief Accountant April 2006 Until now Yes Zhu Liebin China National Offshore Oil Corporation General Manager of the June 2007 Until now Yes Division of Auditing & Supervision

Work Positions in Other Units

Whether Receiving Commencement Termination Remunerations Name Names of other units Title of term of term and allowances

Tsui Yiu Wa China Huiyuan Juice Group Limited, etc. Independent Non-Executive Director 2006 Until now Yes Simon X. Jiang Cyber City Holdings Limited Chairman of the board 2001 Until now Yes Gordon C.K. COSCO International Holdings Limited, Independent Non-Executive Director 1998 Until now Yes Kwong etc.

III. Remunerations of Directors, supervisors and senior management

(I) The decision-making procedures of remunerations of Directors, Supervisors and senior management: Remunerations of Directors and supervisors are subject to shareholders’ approval at general meetings. Remunerations of senior management are determined by the board of directors.

(II) Reference for determining remunerations of Directors, Supervisors and senior management: Depends mainly on the duties and responsibilities of the Directors, supervisors and senior management, and the results of the Company.

Directors and supervisors who do not receive remunerations and allowances from the Company

Names of Directors and supervisors who do not Whether receiving remunerations and receive remunerations and allowances from the Company allowances from the shareholder or other related units

Fu Chengyu Yes Wu Mengfei Yes Zhu Liebin Yes

Annual Report 2009 67 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

IV. Change of Directors, supervisors and senior management

Names Positions Reason for resignation

Yuan Guangyu Vice Chairman, Executive Director, Change in job CEO and President

Andrew Y. Yan Independent Non-executive Director Term of office expired

Zhang Benchun Chairman of the Supervisory Committee Term of office expired

Zhang Dunjie Independent Supervisor Term of office expired

Note: 1. On 2 March 2009, the Company decided to appoint Mr. Liu Jian as CEO. The former CEO, Mr. Yuan Guangyu resigned as CEO due to his job change.

2. On 3 June 2009, the Company convened 2008 Annual General Meeting. Mr. Fu Chengyu, Mr. Liu Jian, Mr. Li Yong and Mr. Tsui Yiu Wa were elected as new directors of the Company through cumulative voting with a term of office of 3 years from the date the resolution passed at the general meeting. Mr. Tsui Yiu Wa has been elected as an Independent Non-executive Director. Mr. Andrew Y. Yan resigned as an Independent Non-executive Director of the Company. Mr. Yuan Guangyu resigned as a Non-executive Director of the Company. At the meeting, Mr. Zhu Liebin and Mr. Wang Zhile were elected as new supervisors who are not employee representatives, with a term of office of 3 years from the date the resolution passed at the general meeting. Mr. Zhang Benchun and Mr. Zhang Dunjie resigned as Supervisors of the Company.

V. Company’s staff As at the end of the reporting period, the Company had a total of 9,155 employees. There are no retired staff expenses that need to be borne by the Company.

The structure of the employees is as follows:

(I) Professional compositions

Number of Professional type employees

Management post 1,991 Technical post 5,027 Operational post 2,137

(II) Educational level

Number of Education employees

Master degree of above 340 Undergraduate 3,911 College 2,413 Secondary 583 Technical college 488 Senior secondary or below 1,420

68 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

11. Report of the Directors

The directors present their report and the audited financial statements of the Company and its subsidiaries (hereinafter collectively referred to as “the Group”) for the year ended 31 December 2009.

Director’s Work The particulars of work of the Directors of the Company and their professional committees during the year are set out in the Corporate Governance of this annual report.

Principal Activities The Company is principally engaged in the provision of offshore oilfield services including drilling services, well services, marine support and transportation services and geophysical services. The principal activities of the subsidiaries comprise investment holding, sale of logging equipment, leasing of geophysical vessels, provision of drilling fluids services and provision of drilling and work over services. There were no significant changes in the nature of the Group’s principal activities during the year. The review of the operating result of the Company during the reporting period and the future development outlook of the Company is set out in the Management Discussion & Analysis of this annual report.

Results and Dividends The Group’s profit prepared under HKFRS for the year ended 31 December 2009 and the state of affairs of the Company and the Group at that date are set out in the financial statements (Hong Kong) on pages 202 to 207.

The Directors recommend the payment of a final dividend of RMB0.14 (tax inclusive) per ordinary share in respect of the year to shareholders who are entitled to bonus and dividends. This recommendation has been incorporated in the financial statements as proposed final dividends within the equity section of the statement of financial position. The total dividend amounts to approximately RMB629,345,000. Further details of this accounting treatment are set out in the Note 12 to financial statements (Hong Kong).

Annual Report 2009 69 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Subsidiaries Particulars of the Company’s subsidiaries as at 31 December 2009 are set out in Note 17 to the financial statements (Hong Kong).

Gearing Ratio Details of the Group’s gearing ratio are set out in Note 43 to the financial statements (Hong Kong).

Remuneration Policies The Group adopts an incentive approach to enable an efficient human resources management. Different incentive schemes based on different kinds of professionals were used and the Company has established an appropriate appraisal system to create a fair competition environment, to maximize the development opportunities for quality staff. Besides, the Company also provided various benefits, including provisions of social insurance, to employees.

Summary Financial information A summary of the published results and the assets, liabilities and minority interests of the Group for the last five years in accordance with Hong Kong Financial Reporting Standards is set out below:

Results Unit: RMB’000

2009 2008 2007 2006 2005

Revenue 17,878,654 12,142,944 9,007,987 6,364,839 4,788,792

Other revenues 95,099 48,671 38,611 31,341 12,919 17,973,753 12,191,615 9,046,598 6,396,180 4,801,711

Depreciation of property, plant and equipment and amortisation of intangible assets (2,865,166) (1,563,534) (1,042,081) (900,244) (755,676) Employee compensation costs (2,669,618) (2,106,497) (1,643,857) (936,936) (833,345) Repair and maintenance costs (609,441) (420,257) (317,546) (356,510) (285,166) Consumption of supplies, materials, fuel, services and others (3,610,001) (2,720,083) (2,003,698) (1,934,817) (1,696,796) Subcontracting expenses (884,384) (542,226) (357,191) (206,325) – Operating lease expenses (589,118) (356,136) (365,706) (313,431) (213,436) Other operating expenses (1,076,167) (693,870) (387,108) (274,444) (105,288) Other selling, general and administrative expenses (381,870) (158,523) (102,003) (81,231) (61,737) Impairment of property, plant and equipments (819,889) – – – –

Total operating expenses (13,505,654) (8,561,126) (6,219,190) (5,003,938) (3,951,444)

Profit from operations 4,468,099 3,630,489 2,827,408 1,392,242 850,267

Financial income/(expenses) Exchange losses, net (92,686) (91,358) (113,868) (46,694) (16,802) Finance costs (786,430) (638,985) (31,563) (36,708) (104) Interest income 60,352 191,433 71,437 27,856 16,956

Financial income/(expenses), net (818,764) (538,910) (73,994) (55,546) 50

Share of profits of jointly-controlled entities 110,264 215,707 113,153 113,505 106,617

Profit before tax 3,759,599 3,307,286 2,866,567 1,450,201 956,934

Income tax expense (624,282) (205,045) (628,983) (321,966) (135,938)

Profit for the year 3,135,317 3,102,241 2,237,584 1,128,235 820,996

70 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Assets and liabilities

Unit: RMB’000

2009 2008 2007 2006 2005

Total assets 60,776,518 56,200,901 23,088,985 13,130,170 9,709,875 Total liabilities 38,470,913 36,403,057 5,863,977 4,511,626 2,055,133

Property, plant and equipment Details of movements in the property, plant and equipment of the Company and the Group during the year are set out in Note 14 to the financial statements (Hong Kong).

Share capital The Company’s share capital has no change during the year.

Pre-emptive rights There are no provisions for pre-emptive rights under the Company’s Articles of Association or the Company Law of the PRC which would oblige the Company to offer new shares on a pro rata basis to existing shareholders.

Purchase, redemption or sale of listing securities of the Company Neither the Company nor its subsidiaries purchased, redeemed or sold any of its listing securities during this year.

Reserves Details of movements in the reserves of the Company and the Group during the year are set out in Note 35 to the financial statements (Hong Kong) and in the consolidated statement of changes in equity, respectively.

Dividend The Group achieved a total net profit of RMB3,135,316,585 in 2009, together with RMB6,208,025,040 of undistributed profit at the beginning of the year, and after deduction of RMB335,584,027 of withdrawal of statutory reserve, and RMB629,344,800 cash dividend for 2008 distributed in June 2009 to all shareholders by the Group, the Group had an undistributed profit of RMB8,378,412,798 as at the end of 2009. Based on the total number of shares of the Group as at the end of 2009, 4,495,320,000 shares, the Group proposed a cash dividend of RMB1.4 (tax inclusive) per 10 shares, with a total cash dividend of RMB629,344,800, and an undistributed profit of RMB7,749,067,998 to be distributed in following years. Such distribution is subject to the review and approval of the 2009 shareholders’ general meeting of the Company.

Dividend of the Group in the previous three years:

Dividend year Cash dividend (tax inclusive) Net profit of the year Percentage (%)

2007 RMB539,438,400 RMB2,237,583,857 24 2008 RMB629,344,800 RMB3,102,241,149 20 2009 RMB629,344,800 RMB3,135,316,585 20

Annual Report 2009 71 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Charitable contributions During the year, the Group made charitable donations totaling RMB1,172,500.

Major Customers and Suppliers In the year under review, sales to the Group’s five largest customers accounted for approximately 74% of the total sales for the year and sales to the largest customer included therein accounted for approximately 59%. Purchases from the Group’s five largest suppliers accounted for approximately 19% of the total purchases for the year; and purchases from the Group’s largest supplier accounted for approximately 8% of the total purchases for the year.

The Group has provided certain oilfield services to and obtained certain services from the companies with the same ultimate holding company of the Company, details of which are set out in the section “Related Party Transactions” below. Save as aforesaid, none of the directors of the Company or any of their associates or any shareholders (which, to the best knowledge of the directors, own more than 5% of the Company’s issued share capital) had any beneficial interest in the Group’s five largest customers and five largest suppliers.

Assets Measured at Fair Value The majority of the assets of the Group were valued using historical cost convention, except for available-for-sale investments, derivative financial instruments and the accounting for business combination, which have been measured at fair value. Internal control and review procedures have been taken by our audit and supervisory department on works of finance department. For details of fair value changes in available-for-sale investments and derivative financial instruments of the Company during the reporting period, please see Note 19 and Note 32 to the financial statements prepared in accordance with Hong Kong Financial Report Standards respectively.

Forecast for Future Development of the Company For details, please see the forecast for future development of the Company set out in the Management Discussion and Analysis.

72 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Use of funds raised In September 2007, the Company publicly issued 500,000,000 A shares, raising a total of RMB6,740 million and a net fund of RMB6,599 million. As at the end of 2009, the proceeds from the A share issue used was RMB6,738 million, the remaining proceeds of RMB11 million was deposited in the A share account at the bank, with sufficient safety assurance.

Unit: RMB million

The total amount of funds raised 6,740 Amount of funds used during the year 1,693 Accumulated amount of funds used 6,738

Actual Whether conform with the Planned investment progress of the plan and Commitment investment amount Adjustment amount estimated earnings

Build the second drilling ship with 400 inches 1,448 No 1,302 Yes Build 2 multi-function drilling platforms 699 No 679 No (note 1) Build 2 drilling ships with 300 inches and automatic rising arm 2,938 No 2,764 Yes Build 18 oilfield operation ships involving six types 1,969 No 1,778 No (note 2) Build 2 ships with three functions in deep sea 1,564 No 429 Yes Rebuilt geophysical ship with 8 cables 530 No 517 Yes Build geophysical ship with 12 cables 1,149 No 187 Yes Build geophysical ship investing in deep sea 529 No 129 Yes Purchase VSP 16 No 16 Yes Purchase 2 sets of oil pile and nitrogen equipment 41 No 36 No (note 3) Purchase 3 sets of LWD equipment items 243 No 197 Yes Purchase equipment with nuclear magnetic resonance for inspecting well 27 No 26 Yes Purchase equipment with function of scanning pictures for inspecting well 32 No 24 Yes

Total 11,185 – 8,084 –

Notes to committed projects not conforming to the progress of the plan:

note 1: The building of the first multi-function drilling platform commenced in February 2006, with the building contract entered into at the end of 2006. The project progress has been postponed, with the platform estimated to be completed and delivered in the second quarter of 2010.

The building of the second multi-functions drilling platform commenced in the first quarter of 2007, the project progress has been postponed, with the platform estimated to be completed and delivered in the second quarter of 2010.

note 2: The project progress has been postponed by 242 days due to the tight global supply of raw materials.

note 3: The project finalized and delivered in January 2009, three months later than the original schedule.

Annual Report 2009 73 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Significant Items Invested not by the Fund Raised from the A Shares Issued by the Company during the Reporting Period The Company publicly issued corporate bonds of RMB1.5 billion on 14 May 2007, which were mainly used for construction of drilling rigs, well ships and upgrading for geophysical ships, among which, remould of 931 drilling rig was completed in the third quarter of 2008, construction the second 400 feet drilling rig has been completed and delivered in the third quarter of 2008, and 18 oilfield operation ships involving six types was completed and delivered in the fourth quarter of 2009.

Charge on Assets with Restricted Use As at 31 December 2009, the Group had no charges against its assets with restricted use.

Contingent Liabilities As at 31 December 2009, the Group had contingent liabilities as set out in Note 40 to financial statements (Hong Kong).

Directors and Supervisors The directors and supervisors of the Company during the year were:

Executive directors: Independent non-executive directors: Supervisors: Liu Jian Gordon C.K. Kwong Zhu Liebin Li Yong Tsui Yiu Wa Yang Jinghong (Employee supervisor) Simon X. Jiang Wang Zhile (Independent supervisor)

Non-executive directors: Fu Chengyu Wu Mengfei

Pursuant to the Articles of Association of the Company, upon election, all directors and supervisors shall serve a term of three years, and may be reelected upon the expiry of such term.

Pursuant to the Rule 3.13 of the Listing Rules of the Stock Exchanges of Hong Kong Limited, the Company had received annual confirmations of independence from Gordon C.K. Kwong, Tsui Yiu Wa and Simon X. Jiang, and as at the date of this report, still considers them to be independent.

74 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Directors, Supervisors and Senior Management Biographies Biographical details of the directors and supervisors of the Company and the senior management of the Group are set out on pages 62 to 66 of the Annual Report.

Directors Service Contracts Each of the independent non-executive directors and independent supervisors is required to enter into a service contract with the Company for a term of three years, renewable upon re-election. Details of the directors remunerations for the year 2009 are set out in Note 7 to financial statements (Hong Kong) of this Annual Report.

Apart from the foregoing, no director proposed for re-election at the forthcoming annual general meeting has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

Directors’ Remuneration The remuneration of Directors and supervisors are subject to shareholder’ approval at general meetings. Other emoluments are determined by the Company’s board of directors with reference to the duties and responsibilities of the directors, the remuneration committee’s recommendation and performance and the results of the Group.

The remuneration committee reviewed the remuneration of directors, supervisors and senior management disclosed in the Annual Report, and in view of the remmuneration committee, the disclosure reflected the real condition of remuneration of the above parties. The committee also reviewed the implementation of the share appreciation plan for management personnel of the Company, which was approved by shareholders’ general meeting on 9 November 2006, with related information set out in pages 50 to 51 of this Annual Report.

Directors’ and Supervisors’ Interest in Contracts None of the directors and supervisors had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party during the year.

Contracts of Significance The Company has entered into several agreements with CNOOC Limited, a related company, and other companies within CNOOC Group other than CNOOC Limited, for the provision of oilfield services by the Company to CNOOC Limited and CNOOC Group, and for the provision of various services by CNOOC Group to the Company. Further details of the transactions undertaken in connection with these contracts during the year are included in Note 41 to the financial statements (Hong Kong).

Save as disclosed, no contract of significance in relation to the Group’s business to which the Company or any of its subsidiaries was a party, and in which the controlling Shareholder of the Company had a material interest, whether directly or indirectly, subsisted at year end or at any time during the year.

Directors’, Chief Executives’ and Supervisors’ Interests and Short Position in Shares As at 31 December 2009, none of the directors, chief executive and supervisors and their respective associates had registered an interest or short positions in the shares of the Company or any of its associated corporations which would fall to be notified to the Company, pursuant to Section 352 of the Securities and Futures Ordinance (the “SFO”), or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers and the Administrative Rules of the Shares owned by Directors, Supervisors and Chief Executives of Listed Issuers and their changes issued by the CSRC. As at 31 December 2009, in respect of A share issued by the Company, Mr. Fu Chengyu, the Chairman of the Company has interest in 20,000 A share purchased by way of bidding in Shanghai Stock Exchange during the reporting period of 2007.

Annual Report 2009 75 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Directors’, Supervisors’ and Senior Management’s Rights to Acquire Shares or Debentures At no time during the year were rights to acquire benefits by means of acquisition of shares in or debentures of the Company granted to any directors, chief executive and supervisors or their respective spouses or minor children, or were any such rights exercised by them; nor was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable the directors to acquire such rights in any other body corporate.

Substantial Shareholders’ and Other Persons’ Interests in Shares As at 31 December 2009, so far as is known to any director, or the chief executive, 5% or more of the interest of the issued share capital of the Company as recorded in the register of interests maintained by the Company pursuant to the Section 336 of the SFO are as follows:

Number of shares Shares Name of shareholder Shares held in interest (share) in COSL’s interest(%)

JPMorgan Chase & Co. Interest in controlled corporation 215,427,976(L) 14.04(L) 527,000 (S) 0.03 (S) 90,101,906(P) 5.87(P) Commonwealth Bank of Australia Interest in controlled corporation 89,886,000(L) 5.86(L) Morgan Stanley Interest in controlled corporation 78,043,833(L) 5.08(L) 1,284,931 (S) 0.08 (S) Mirae Asset Global Investments Direct Beneficial owner 77,265,573(L) 5.03(L) (Hong Kong) Limited

Notes (a) “L” means long position. (b) “S” means short position. (c) “P” means lending pool.

Save as disclosed above, the directors are not aware of any other person who had an interest in the shares of the Company which would fall to be disclosed to the Company pursuant to Section 336 of the SFO.

Connected Transactions (Defined and governed by the Listing Rules of HKSE) Under the Listing Rules, connected transactions of the Company must be fully disclosed and may be subject to the requirement of independent shareholders’ approval, if the transaction is over a certain amount. The Company has applied to the Stock Exchange of Hong Kong Limited (“HKSE”) at the time of listing on the HKSE for a waiver from strict compliance with the reporting, announcement and independent shareholders’ approval requirements in respect of the continuing connected transactions of the Company and the HKSE has granted a waiver in respect of such requirements for a period of three years, subject to renewal upon expiry. In 2007, the Company renewed connected transactions expired at the end of 2007.

The Company and CNOOC entered into a new integrated services framework agreement in respect of the continuing connected transactions between the Company and CNOOC and its subsidiaries from 1 January 2008 to 31 December 2010 of the Company on 7 November 2007. The resolution in respect of the continuing connected transactions for three years from 1 January 2008 to 31 December 2010, was approved at the extraordinary general meeting convened on 31 December 2007.

76 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Connected Transactions (Defined and governed by the Listing Rules of HKSE) (continued) For the year ended 31 December 2009, the Group had the following transactions:

2009 2008 RMB’000 RMB’000

A. Included in revenue (not including operating tax) Revenue earned from provision of services to the following related parties: a. CNOOC Limited Group Provision of drilling services 4,913,421 3,321,950 Provision of well services 3,437,798 2,159,691 Provision of marine support and transportation services 1,547,896 1,141,586 Provision of geophysical services 1,013,549 1,013,630

10,912,664 7,636,857

b. Th e CNOOC Group Provision of drilling services 302,997 109,750 Provision of well services 160,861 18,979 Provision of marine support and transportation services 219,166 225,455 Provision of geophysical services 158,835 135,118

841,859 489,302

B. Included in operating expenses Services provided by the CNOOC Group: Labour services 24,481 25,554 Materials, utilities and other ancillary services 291,237 229,686 Transportation services 4,250 2,981 Leasing of oﬃ ce, warehouse, and berths 82,117 69,519 Repair and maintenance services 3,985 17,585 Management services 24,946 53,513

431,016 398,838

C. Included in interest income/ expenses: CNOOC Finance Co., Ltd. Interest income 4,247 1,716 Interest expenses 22,812 836

D. Loans drawn down and repaid during the year CNOOC Finance Co., Ltd. 1,300,000 199,659

E. Deposits: Deposits placed with CNOOC Finance Co., Ltd. as at year end 541,962 539,821

F. Construction of 200 feet drilling rigs Oﬀ shore Oil Engineering Co. Ltd 1,262,965 107,038

The independent shareholders of the Company have granted the connected transactions set out in (A) and (B) above on 31 December 2007. For item (C) above, the transaction was qualified as “De minimis transaction” as defined in the Listing Rules and for item (D), the transaction was qualified as “exempt financial assistance” as defined in the Listing Rules. For item (E), the transaction was exempted from the independent shareholders’ approval requirement which was approved by Independent Directors on 29 April 2008. For item (F), independent shareholders have granted their approval to the Company in regarding to such connected transaction on 13 February 2009.

Annual Report 2009 77 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Connected Transactions (Defined and governed by the Listing Rules of HKSE) (continued) The independent non-executive directors have reviewed the above transactions and have confirmed that:

(1) the transactions were entered into between the Group and the connected persons of their respective associates (where applicable) in the ordinary and usual course of its business; (2) the transactions were entered into on normal commercial terms, or where there is no available comparison, on terms no less favourable than those available from or to independent third parties; (3) the transactions were entered into in accordance with the relevant agreements governing such transactions, on terms that are fair and reasonable to the independent shareholders as a whole; (4) for items (A) and (B) above, the transactions were entered into with the annual aggregate value within the relevant annual limits of each category as approved by the independent shareholders.

Auditors of the Company has written a letter to the board and stated that for the items (A) and (B) above:

(a) Such transactions received approvals from the board; (b) The value of such transactions complied with the pricing standard stated in related agreements; (c) The terms of such transactions were made under the terms of agreement and documents for supervising such transactions; (d) The actual amount of such transactions did not exceed the relevant exempt limit.

Related Party Transactions (for Stock Listing Rules of Shanghai Stock Exchange) The disclosures and approval of the related transaction between the Company and CNOOC Limited or other members of CNOOC Group had complied with the related requirements of the Stock Listing Rules of Shanghai Stock Exchange.

Prospectus of the A Share made full disclosure to the above related transactions and agreements between the Company and CNOOC or other members of CNOOC Group. The Company entered into integrated service under a master agreement with CNOOC on 7 November 2007, making supplement for terms of certain related transactions. Please refer to the China Securities Journal, the Shanghai Securities, the Securities Times, Hong Kong’s Wenhui Bao and the Standard and website of HKSE, the Shanghai Stock Exchange and the website of the Company for details of continuing related transaction published on 8 November 2007. All related transactions made in 2009 have been complied with the related requirement of Stock Listing Rules of Shanghai Stock Exchange.

78 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Related Party Transactions (for Stock Listing Rules of Shanghai Stock Exchange) (continued) During the year ended 31 December 2009, the major transactions between the Company and related parties were as follows:

(1) Services Provided to Related Parties Unit: RMB Yuan

Financial Report (PRC) 2009 2008 Provision of drilling services CNOOC Limited Group 4,913,421,326 3,321,950,060 Oﬀ share Oil Engineering Co., Ltd. 6,325,412 – CNOOC 291,954,603 94,999,381 CNOOC Energy Technology & Services Ltd. – Oilﬁ eld Construction Engineering Company – 4,198,500 Other CNOOC Group companies 4,716,994 10,551,899 Jointly-controlled entities 172,528,724 4,688,951 Subtotal 5,388,947,059 3,436,388,791 Gross external revenue amount of provision of drilling services 10,135,321,629 6,038,878,560 Proportion in similar transactions 53% 57%

Provision of well services CNOOC Limited Group 3,432,382,620 2,132,006,625 CNOOC 47,637,983 14,065,327 Oﬀ share Oil Engineering Co., Ltd. 68,589,686 – Other CNOOC Group companies 20,065,876 3,391,665 Jointly-controlled entities 5,563,384 11,081,151 Subtotal 3,574,239,549 2,160,544,768 Gross external revenue amount of provision of well services 4,523,577,858 2,798,360,958 Proportion in similar transactions 79% 77%

Provision of marine support and transportation services CNOOC Limited Group 1,547,895,592 1,141,586,066 Oﬀ shore Oil Engineering Co., Ltd 114,259,877 91,894,431 CNOOC 37,424,020 9,435,738 CNOOC Kaishi Petrochemical Company Limited 29,966,785 – Bohai Material Supply Company – 8,196,000 CNOOC Kingboard Chemical Ltd. – 24,988,731 Shenzhen Weicheng Ocean Petroleum Technology Co., Ltd. – 7,840,381 Other CNOOC Group companies 37,515,459 75,493,010 Jointly-controlled entities 7,031,418 4,637,273 Subtotal 1,774,093,151 1,364,071,630 Gross external revenue amount of provision of marine support and transportation services 2,239,378,199 1,665,446,658 Proportion in similar transactions 79% 82%

Provision of geophysical services CNOOC Limited Group 1,013,549,070 1,013,630,433 Oﬀ shore Oil Engineering Co., Ltd 129,923,031 119,534,593 CNOOC Shenzhen Natural Gas Co., Ltd 10,451,797 – CNOOC Research Centre 13,600,000 – Bohai Oil Harbor Engineering and Construction Company – 33,000 CNOOC Oil Reﬁ nery and Petrochemical & Dongguan Oil Products Storage and Transportation Co., Ltd. – 8,611,301 CNOOC 2,059,336 1,400,000 Other CNOOC Group companies 2,800,849 5,539,455 Jointly-controlled entities 657,352 4,209,250 Subtotal 1,173,041,435 1,152,958,032 Gross external revenue amount of provision of geophysical services 1,447,123,729 1,927,566,415 Proportion in similar transactions 81% 60%

Annual Report 2009 79 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

Related Party Transactions (for Stock Listing Rules of Shanghai Stock Exchange) (continued) (2) Services Provided by Related Parties

2009 2008

Oﬀ shore Oil Engineering Co., Ltd 1,262,970,022 107,990,877 Other CNOOC Group companies 428,818,282 358,297,622 Jointly-controlled entities 110,921,891 33,471,207

Total 1,802,710,195 499,759,706

(3) Loan of funds from/to Related Parties

2009 Amount Inception date Due date Funds borrowed RMB

CNOOC Finance Co., Ltd. Loan 1 800,000,000 12 June 2009 10 June 2011 Loan 2 500,000,000 30 June 2009 29 June 2012

No funds were borrowed from and lent to related parties during 2008.

(4) Leases of Related Parties

During the period of restructuring, the Company entered into various agreements with CNOOC in relation to employee benefits arrangement, provision of materials, utilities and ancillary services, as well as provision of technical services, leases and other commercial arrangements.

Prior to restructuring, the Group uses certain properties of CNOOC without payment. The Company signed a number of leasing agreements with CNOOC on September 2002 to rent the above properties and other properties for one year. Such leasing contracts are renewed annually according to market price.

In view of directors of the Company, the above transactions with related parties were carried out in the normal course of business.

Sufficiency of public float Based on information that is publicly available to the Company and to the best knowledge of the directors, at least 25% of the Company’s total issued share capital was held by the public at the date of this report.

Events after reporting period As of the date of this report, the Group had no events after reporting period which should be disclosed.

80 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

Audit Committee In accordance with requirements of related notices of CSRC, before the site audit of the auditors, the audit committee of the Group reviewed the annual audit work arrangement and other related information submitted by the Company, and approved the annual audit work schedule formulated by the Company and the auditors and confirmed effective communications with the auditors before and after such site audit, and suggested related opinion with regard to related work.

The final results of the Group have been reviewed by the audit committee of the Board which consists of three independent non-executive directors. The committee has reviewed the accounting principles and practices adopted by the Company, and has also discussed auditing, internal control and financial reporting matters including the review of audited 2009 annual results with the management.

Code on Corporate Governance Practices and Model Code for Securities Transactions by Directors of Listed Issuers For the year under review, compliance with the Code on Corporate Governance Practices by the Company is set out in the Corporate Governance on pages 41 to 51 of this annual report. Upon specific enquiry to each and every director by the Company, the Board of Directors confirms that all members of the Board, for the year under review, have complied with the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules.

Auditors This financial report has been audited by Ernst & Young and Ernst & Young Hua Ming. They will retire and a resolution for their reappointment as auditors of the Company will be proposed at the forthcoming annual general meeting.

Change in Accounting Policy

Originally, for the long term equity investments measured at cost method in the financial statements prepared under CAS, the investment income that the Group recognized was limited to proportionate distributions from accumulated profits after the acquisition. The extra cash dividends or profits gained by the Group were treated as a recovery of investment cost. After the adoption of the Interpretation No.3 to the CAS on 1 January 2009, the investment income that the Group recognizes is no longer based on distributions from accumulated profits before or after the date of acquisition. Since then, for the long term equity investments measured at cost method, the Group recognized investment income according to the cash dividends or profits declared by the investee, except for cash dividends or profits declared but unpaid which were included in the consideration payment for acquiring the investment. The change of the accounting policy has no effect on the Group’s financial statements prepared under CAS.

Change in Accounting Estimates

Subsequent to the announcement of asset impairment in the interim period of the year, the Group completed, on 30 September 2009, the purchase price allocation in respect of its acquired assets. As such, the Group made retrospective adjustments on opening balances of the related items in the statement of financial position.

ON BEHALF OF THE BOARD

Fu Chengyu Chairman 30 March 2010

Annual Report 2009 81 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

12. Supervisory Committee Report

Th e Supervisory Committee of the Company for the year 2009 has diligently performed its responsibilities, supervised and examined the procedures for decision making, the operating situation according to the law and fi nancial disclosure etc. for the Company, and provided necessary protection for the legal benefi ts of the shareholders, the Company and the staff in accordance with the requirements of the Company law of the People’s Republic of China, Articles of Association and the Rules of Procedure for the Supervisory Committee of the Company.

1. Changes of Members of the Supervisory Committee during the Reporting Period During the reporting period, there was a change in two members of the Supervisory Committee:

Th e terms of oﬃ ce of Supervisor, Zhang Benchun and Independent Supervisor, Zhang Dunjie expired on 3 June 2009. Zhu Liebin and Wang Zhile will be their successors. As the date of this report, the Supervisory Committee of the Company comprises of:

Chairman: Zhu Liebin, elected as Supervisor at the General Meeting on 3 June 2009 and appointed as the Chairman of Supervisory Committee by the Supervisory Committee on 4 June 2009 (eff ected from 4 June 2009); Staff Representative; Yang Jinghong, elected as the Supervisor and Employee Representative of the Company at the Staff Representatives’ Meeting on 26 July 2007 for a term until 25 July 2010; Independent Supervisor: Wang Zhile, elected as Supervisor at the general meeting on 3 June 2009 for a term until 2 June 2012.

2. Operation of the Supervisory Committee (1) During the reporting period, supervisor Zhang Benchun attended 2 regular Board meetings, supervisor Yang Jinghong attended 4 regular Board meetings, supervisor Zhang Dunjie attended 2 regular Board meetings, supervisor Zhu Liebin attended 3 regular Board meetings and supervisor Wang Zhila attended 3 regular Board meetings. During the reporting period, 5 Supervisory Committee’s meetings were convened. Each Supervisory Committee’s meeting was convened on the same date aft er each Board meeting that the supervisors attended concluded. Procedures for calling the Board meeting and its resolutions were reviewed during the Committee’s meetings;

(2) Members of the Supervisory Committee also attended meetings of the Audit Committee under the Board of Directors during the reporting period and listened to a speciﬁ c report given by the management in respect of the ﬁ nancial results and internal control;

(3) Th e Supervisory Committee had given its professional audit advice in respect of the 2008 Annual Report, the 2009 Interim Report, the 1st quarterly report and the 3rd quarterly report for the year 2009 in compliance with the regulatory requirements of the issue of A shares during the reporting period.

(4) During the reporting period, the Supervisory Committee reviewed the eﬀ ectiveness of internal control of the Company and made certain recommendation for improvement.

(5) Zhang Benchun, Chairman of the Supervisory Committee, attended the Extraordinary General Meeting on 13 February 2009, Yang Jinghong attended the Annual General Meeting on 3 June 2009, the two supervisors supervised and witnessed the procedures of the shareholders’ general meetings.

82 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

3. Independent Opinions of the Supervisory Committee (1) Th e Company’s operating situation according to the law Aft er supervising and examining the operating situation of the Board of Directors of the Company and the senior management, and the management system of the Company, the Supervisory Committee of the Company is of the opinion that the procedures for calling the General Meeting and Board meetings and the relevant resolutions made during the reporting period were in compliance with the requirements of the laws, regulations and the Articles of Association. Directors and the senior management have not been found violating any laws, regulations or the Articles of Association when performing duties of the Company and have not been found conducting any behaviour that would damage the interests of the Company and the shareholders. (2) Management situation and internal control of the Company Th e Supervisory Committee is of the opinion that during the reporting period, the Company has been under the eff ective management and control of the Board and the management, and the eff ective operation of internal control kept the Company from signifi cant management and fi nancial risks. Th e Supervisory Committee is of the view that the Company needs to optimize the related system on one hand and to increase the strictness and eff ectiveness of the implementation of such system on the other hand. Th e Company should pay more attention to the risk prevention, especially during its rapid development, to increase its risk resistant ability. Besides, the management of the Company and the related departments should implement stricter control on main construction projects while further improving the process of the decision-making, key node and the report of other signifi cant issues in terms of system and procedure as well as further illuminating such authorities. (3) Th e performance of responsibilities of Directors and senior management Th e Supervisory Committee is of the view that the Board of Directors, both collectively and individually, have earnestly performed their duties integrity and diligently, and each Director has earnestly understood the situation of the Company and thoroughly discussed the Company’s aff airs before making decisions. Also, management have earnestly performed their duty business especially under the challenges of global fi nancial crisis and market downturn, and outstandingly accomplished the objectives set by the Board through actively adopting various solutions to overcome the challenges. (4) Financial situation of the Company Th e Supervisors have supervised and examined the fi nancial management system and fi nancial situation of the Company by participating the Board meetings and the meetings of the Audit Committee under the Board of Directors and have reviewed relevant financial information of the Company during the examination process. After such examination, the Supervisory Committee is of the opinion that the Company is in strict compliance with the fi nancial laws and regulations and the fi nancial system. Th e fi nancial management system of the Company is healthy and eff ective, the accounting methods are consistent while the fi nancial statements are true and reliable. Ernst & Young and Ernst & Young Hua Ming have audited the fi nancial reports of the Company for year 2009 prepared in accordance with HKFRS and CAS and have issued unqualifi ed opinions on the reports. Th e Supervisory Committee considers the report to be objective and fairly refl ects the fi nancial position and the results of operation of the Company. (5) Use of raised fund During the reporting period, the Supervisory Committee checked the use of the total net proceeds raised in 2007 by the Company from the issue of A shares amounted to RMB6.599 billion, and is of the opinion that such use was in accordance with the disclosure set out in the prospectus and the requirements of the China Securities Regulatory Commission. No improper use and appropriation of proceeds had occurred. (6) Related parties transactions During the reporting period, all the related parties transactions entered between the Company and CNOOC and its subsidiaries had complied with all the relevant requirements of HKSE and the Shanghai Stock Exchange and those transactions were necessary for the production and operation of the Company and were at fair prices and in the interests of the Company and the shareholders as a whole.

For and on behalf of Supervisory Committee

ZZhuhu LieLiebinbin Chairmanairman of the Supervisory CommiCommittee 30 March 2010

Annual Report 2009 83 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

13. Signiﬁ cant Events

(I) Signifi cant litigation or arbitration Unit: RMB Amount Judgment Procedure of involved in Process of and Eff ect of Execution of the Plaintiff Party Carrying Litigation/ the Litigation the Litigation the Litigation the Litigation Judgment of the (Applicant) Respondent Joint Liability Arbitration (Arbitration) (Arbitration) (Arbitration) (Arbitration) Litigation (Arbitration)

Former minor CDE Nil Litigation Note 1 N/A (note 2) Note 1 Note 1 Final judgment has not shareholder of been made AWO

Note 1: In January 2007, Awilco Off shore ASA (AWO) made a compulsory acquisition of the outstanding shares in Off Rig Drilling ASA (“OFRD”). Th e acquisition was made in accordance with the Norwegian Public Limited Companies Act 4-25. Certain minority shareholders owning an aggregate of 8.8% in OFRD disagreed with the price paid per share. In 2009, an appraisement where the redemption price for the shares was set at a price higher than the acquisition price was made by a Norwegian court. COSL Drilling Europe AS (CDE) has fi led a petition for a second appraisement by a higher court and the proceedings have been set in 2010.

Note 2: As the ﬁ nal judgement has not been made for this litigation, the Company could not determine the amount involved.

(II) Bankruptcy or reorganization Th ere was no bankruptcy or reorganization during the year.

(III) Other major items and analysis and explanation of the inﬂ uence and solution of such items Security investment

Carrying Percentage Revenue/loss value at the to period during the Initial end of the end security reporting period No Security code Security Abbreviation investment ($) Shares held period ($) investment (%) ($)

1 ISIN JACK 207,118,792 11,994,030 19,281,034 100% (15,003,044) NO0010244346

Total 207,118,792 / 19,281,034 100% (15,003,044)

Th e above mention ﬁ nancial asset was held by CDE acquired by the Company on 29 September 2008.

84 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(IV) Acquisitions, disposal of assets and mergers of the Company during the reporting period Th ere was no acquisition, disposal of assets and mergers of the Company during the year.

(V) Signiﬁ cant related party transactions of the Company during the reporting period According to the connected agreement between the Group and CNOOC or other members of CNOOC Group, the major related party transactions were included as follows:

(1) Provisions of oﬀ shore oilﬁ eld services by the Group to CNOOC Group;

(2) Provisions of material, facilities, labor force and full set of logistics services by CNOOC Group to the Group;

(3) Provisions of oﬃ ces and production plants and related property management services by CNOOC Group to the Company.

As of 31 December 2009, signiﬁ cant related party transactions of the Company are set out in related party transactions (applicable for Stock Listing Rules of Shanghai Stock Exchange) of the Report of the Directors.

Th e Company entered into a number of agreements with CNOOC upon restructuring in respect of employee’s beneﬁ t arrangement, material provision, public utilities and ancillary service and provision of technology service, house leasing and other various commercial arrangements.

Prior to restructuring, the Group use certain properties of CNOOC without payment. Th e Company signed a number of leasing agreements with CNOOC on September 2002 to rent the above properties and other properties for one year. Such leasing contracts are renewed annually according to market price.

In view of directors of the Company, the above transactions with related parties were carried out in the normal course of business.

Statement of impact of related transactions on the Company’s proﬁ t and its necessarity and continuity

Th ere were many connected transactions between the Company and related parties such as CNOOC (China) Limited, due to CNOOC’s exclusive regulation of corporation with foreign countries for exploring oil and its development history, which complied with the requirement of the policies in the industry. Th ese related transactions constituted the major income source of the Company, making huge eff ect on the Company’s development. Stable growth in the Company’s business during the consecutive six years aft er listing of H share proved that these related transactions were a dispensable part for the Company’s development. Th e related transaction of the Company confi rmed the price of the contracts through public bidding or negotiation, refl ecting the fair, justice, open principle and favorable for the development of the Company’s main business and ensuring to maximize the interest of shareholders. Th e fact showed that these related transactions were necessary and should continue in future.

Annual Report 2009 85 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

(V) Signiﬁ cant related party transactions of the Company during the reporting period (continued)

Related Parties’ Balances

Financial Statements (PRC)

Unit: RMB

31 December 31 December Group 2009 2008

Accounts Receivable

CNOOC Limited Group 1,874,789,040 1,236,112,535 CNOOC 257,469,184 120,526,395 Oﬀ shore Oil Engineering Co., Ltd 102,933,658 59,366,522 COSL-Expro 1,443,357 2,426,922 China France Bohai 502,894 76,659 CNOOC-OTIS 644,725 25,134 Magcobar 557,135 623,444 Fugro 12,768 1,875 Logging-Atlas 2,911,943 45,284 Atlantis Deepwater 80,022,467 – Others 32,255,222 17,892,944

2,353,542,393 1,437,097,714

Accounts Payable CNOOC Limited Group 1,593,506 1,071,670 Bohai Oil Material Supply Company Limited 22,595,651 2,716,262 Oﬀ shore Oil Engineering Co., Ltd 64,555,747 952,652 Yaujiao Base Branch of CNOOC Enterprises Corporation 175,387 3,667,079 Magcobar 1,126,800 10,489,073 Fugro 5,417,087 8,332,671 China France Bohai 1,929,742 3,156,492 Logging-Atlas 23,442,814 26,786,115 Others 31,661,313 47,527,074

152,498,047 104,699,088

86 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(V) Signiﬁ cant related party transactions of the Company during the reporting period (continued)

Unit: RMB

31 December 31 December Group 2009 2008

Other receivables CNOOC Limited Group 844,605 921,417 CNOOC 1,983,532 2,299,741 COSL-Expro 4,511,608 1,651,610 China France Bohai 4,810,302 2,555,940 CNOOC-OTIS – (120) Fugro 2,027 – Logging-Atlas 74,250 74,250 Atlantis Deepwater 30,115,828 26,694,570 Premium Drilling 147,177,452 71,919,890 Others 372,591 1,200,554

189,892,195 107,317,852

Other payables CNOOC Limited Group – 3,898,837 CNOOC 3,248,229 3,248,229 China Oﬀ shore Oil Int’l Engineering Company 16,260,729 14,668,495 China France Bohai 96,072 96,072 COSL-Expro 13,432 93,771,347 Premium Drilling 32,353,555 – Others 22,032,799 16,496,087

74,004,816 132,179,067

Receipts in advance CNOOC Limited Group – 33,519,000

Prepayments CNOOC Energy Technology & Services Ltd. – Oilﬁ eld Construction Engineering Company – 24,600,000 Oﬀ shore Oil Engineering Co., Ltd 298,097,500 259,724,275

298,097,500 284,324,275

Notes receivable CNOOC Limited Group 427,107,943 338,269,985

Notes payable Oﬀ shore Oil Engineering Co., Ltd – 366,762,500

Cash kept in Related Company CNOOC Finance Co., Ltd 541,962,050 539,821,006

Annual Report 2009 87 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

(VI) Major contracts and their performance 1. Custodies, contracted operation and lease (1) Custodies

Th e Company had not taken any custody during the year.

(2) Contracted operation

Th e Company had not undertaken any signiﬁ cant contracted operation during the year.

(3) Lease

Th e Company had not entered into any signiﬁ cant lease during the year.

2. Guarantee

Th e Company had not carried any signiﬁ cant guarantee during the year.

3. Entrusted fund

Th e Company had no fund entrustment during the year.

4. Other contracts of signiﬁ cance

Th e Company entered into a master agreement with CNOOC on 7 November 2007, making supplement for terms of certain connected transactions eﬀ ective from 1 January 2008 to 31 December 2010. Please refer to China Securities Journal, Shanghai Securities, Securities Times, Hong Kong’s Wenhui and THE STANDARD and website of HKSE, Shanghai Stock Exchange and the website of the Company for details of continuing connected transaction published on 8 November 2007. (VII) Performance of commitments Th e commitments of the Company or shareholders with over 5% during the reporting period or continuing to the reporting period.

Commitment Commitment content Performance Commitment made at oﬀ ering CNOOC, the controlling shareholder of During the reporting period, there was no the Company, undertakes that shares of breach of the commitments stated above. the Company indirectly held by it shall neither be transferred or entrusted to others for management, nor be acquired by the Company within the 36 months upon listing of A share.

(VIII) Engagement and dismissal of auditors of the Company During the reporting period, the Company did not change its auditors. Th e Company has engaged Ernst & Young Hua Ming as domestic auditors of the Company and Ernst & Young as overseas auditors of the Company since 2002. (IX) Penalizing and correcting listed companies and their directors, supervisors, senior management, shareholders and benefi cial controller During the reporting period, the Company, its directors, supervisors, senior management, shareholders of the Company and benefi cial controller had not been examined, criticised, nor received administrative punishments by CSRC, nor were publicly reprimanded by the Stock Exchange. (X) Other signifi cant events Share appreciation rights plan (for details, please see pages 50 to 51 of this Annual Report)

88 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(XI) Information disclosure reference

Name of newspaper or Event interface of posting Posting date Link of Worldwide Web of posting Connected Transaction and Discloseable 2009-1-7 http://www.hkex.com.hk/index.htm Transaction and Stock Appreciation http://www.cosl.com.cn/ Rights Scheme Notice of Extraordinary General Meeting 2009-1-7 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Proxy Form for Extraordinary General 2009-1-7 http://www.hkex.com.hk/index.htm Meeting http://www.cosl.com.cn/ Reply Slip for Extraordinary General 2009-1-7 http://www.hkex.com.hk/index.htm Meeting http://www.cosl.com.cn/ Notice for Convening 2009 First China Securities Journal 2009-1-8 http://www.sse.com.cn Extraordinary General Meeting of Shanghai Securities News http://www.cosl.com.cn/ COSL Securities Times Announcement of Results of the Board China Securities Journal 2009-1-8 http://www.sse.com.cn Meeting of COSL Shanghai Securities News http://www.cosl.com.cn/ Securities Times Business Strategy for the Financial Year 2009-1-20 http://www.hkex.com.hk/index.htm Ending 2009 http://www.cosl.com.cn/ Announcement of the 2009 Business China Securities Journal 2009-1-21 http://www.sse.com.cn Strategy of COSL Shanghai Securities News http://www.cosl.com.cn/ Securities Times Monthly Return of Equity issuer on 2009-2-5 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 31 January 2009 Announcement of Results of 2009-2-13 http://www.hkex.com.hk/index.htm Extraordinary General Meeting Held http://www.cosl.com.cn/ on 13 February 2009 Announcement of the Results of 2009 China Securities Journal 2009-2-14 http://www.sse.com.cn First Extraordinary General Meeting Shanghai Securities News http://www.cosl.com.cn/ of COSL Securities Times Legal Opinion Letter on 2009 First 2009-2-14 http://www.sse.com.cn Extraordinary General Meeting of http://www.cosl.com.cn/ COSL Resignation of Director and Change of 2009-3-2 http://www.hkex.com.hk/index.htm Chief Executive Oﬃ cer http://www.cosl.com.cn/ Announcement of Results of the Board China Securities Journal 2009-3-3 http://www.sse.com.cn Meeting of COSL Shanghai Securities News http://www.cosl.com.cn/ Securities Times Announcement of Results of the Board China Securities Journal 2009-3-5 http://www.sse.com.cn Meeting of COSL Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-3-5 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 28 February 2009 Notice of Board Meeting 2009-3-16 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/

Annual Report 2009 89 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

(XI) Information disclosure reference (continued)

Name of newspaper or Event interface of posting Posting date Link of Worldwide Web of posting Announcement of Annual Results for the 2009-4-1 http://www.hkex.com.hk/index.htm Year Ended 31 December 2008 http://www.cosl.com.cn/ Announcement of the Results of 2009 China Securities Journal 2009-4-2 http://www.sse.com.cn First Board Meeting of COSL Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ Annual Report of COSL 2009-4-2 http://www.sse.com.cn http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Summary of the Annual Report of COSL China Securities Journal 2009-4-2 http://www.sse.com.cn Shanghai Securities News http://www.cosl.com.cn/ Securities Times Announcement of Results of 2009 First China Securities Journal 2009-4-2 http://www.sse.com.cn Supervisory Committee Meeting of Shanghai Securities News http://www.hkex.com.hk/index.htm COSL Securities Times http://www.cosl.com.cn/ Speciﬁ ed Description of the Transfer 2009-4-2 http://www.sse.com.cn of Non-operating Fund and Other http://www.cosl.com.cn/ Associated Fund of COSL in 2008 Monthly Return of Equity Issuer on 2009-4-2 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 31 March 2009 Continuous Governing opinion from 2009-4-16 http://www.sse.com.cn Independent Financial Adviser http://www.hkex.com.hk/index.htm of COSL in Respect of the Actual http://www.cosl.com.cn/ Progress of the Restructure of Material Assets Notice of Board Meeting 2009-4-18 http://www.sse.com.cn http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Closure of Register of Shareholders 2009-4-27 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ 2008 Annual Report of COSL 2009-4-29 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Notice of Annual General Meeting 2009-4-29 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Circular of Annual General Meeting 2009-4-29 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Proxy form for Annual General Meeting 2009-4-29 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Reply Slip for Annual General Meeting 2009-4-29 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Proposed Provision of Corporate 2009-4-29 http://www.hkex.com.hk/index.htm Communication through the http://www.cosl.com.cn/ Company’s Website and Proposed Amendments to the Articles of Association Re-election of Directors and Supervisors 2009-4-29 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/

90 China Oilﬁ eld Services Limited CORPORATE SUMMARY OF SOCIAL RESPONSIBILITY DIRECTORS, SUPERVISORS, REPORT OF SUPERVISORY SIGNIFICANT GOVERNANCE GENERAL MEETINGS REPORT SENIOR MANAGEMENT & THE DIRECTORS COMMITTEE REPORT EVENTS EMPLOYEES

(XI) Information disclosure reference (continued)

Name of newspaper or Event interface of posting Posting date Link of Worldwide Web of posting Notice of Convening 2008 Annual China Securities Journal 2009-4-30 http://www.sse.com.cn General Meeting of COSL Shanghai Securities News http://www.cosl.com.cn/ Securities Times Announcement of the Results of 2009 China Securities Journal 2009-4-30 http://www.sse.com.cn Second Board Meeting of COSL Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ 1st Quarter Report of COSL China Securities Journal 2009-4-30 http://www.sse.com.cn Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-5-4 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 30 April 2009 Announcement of the online road show of China Securities Journal 2009-5-27 http://www.sse.com.cn COSL Shanghai Securities News http://www.cosl.com.cn/ Securities Times Closure of Register of Shareholders 2009-6-1 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-6-2 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 31 May 2009 Results of Annual General Meeting Held 2009-6-3 http://www.hkex.com.hk/index.htm on 3 June 2009 http://www.cosl.com.cn/ Announcement of Results of 2008 Annual China Securities Journal 2009-6-4 http://www.sse.com.cn General Meeting of COSL Shanghai Securities News http://www.cosl.com.cn/ Securities Times Legal Opinion Letter on 2008 Annual 2009-6-4 http://www.sse.com.cn General Meeting of COSL http://www.cosl.com.cn/ Announcement for A Share 2008 Final China Securities Journal 2009-6-17 http://www.sse.com.cn Dividend of COSL Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-7-2 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 30 June 2009 Announcement of Results of the Board China Securities Journal 2009-7-8 http://www.sse.com.cn Meeting of COSL Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-8-3 http://www.hkex.com.hk/index.htm Movements in Securities for Th e http://www.cosl.com.cn/ Month Ended 31 July 2009 Notice of the Board meeting 2009-8-14 http://www.sse.com.cn http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Announcement Pursuant to Rule 13.09 of 2009-8-21 http://www.hkex.com.hk/index.htm the Listing Rules http://www.cosl.com.cn/ Announcement of Impairment of Assets China Securities Journal 2009-8-22 http://www.sse.com.cn of COSL Shanghai Securities News http://www.cosl.com.cn/ Securities Times

Annual Report 2009 91 COMPANY PROFILE PRINCIPAL FINANCIAL CHANGES IN SHARE CHAIRMAN’S STATEMENT CHIEF EXECUTIVE OFFICER’S MANAGEMENT DISCUSSION & DATA AND FINANCIAL CAPITAL AND REPORT ANALYSIS INDICATORS PARTICULARS OF SHAREHOLDERS

(XI) Information disclosure reference (continued)

Name of newspaper or Event interface of posting Posting date Link of Worldwide Web of posting Announcement of Interim Results for the 2009-8-28 http://www.hkex.com.hk/index.htm Six Months Ended 30 June 2009 http://www.cosl.com.cn/ Summary of Interim Results for the Six China Securities Journal 2009-8-29 http://www.sse.com.cn Months Ended 30 June 2009 Shanghai Securities News http://www.cosl.com.cn/ Securities Times Interim Report for six months ended 30 2009-8-29 http://www.sse.com.cn June 2009 of COSL http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-9-2 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 31 August 2009 Election of Language and Means of 2009-9-16 http://www.hkex.com.hk/index.htm Receipt of Corporate Communication http://www.cosl.com.cn/ to Non-registered Shareholders Reply Form to Non-registered 2009-9-16 http://www.hkex.com.hk/index.htm Shareholders http://www.cosl.com.cn/ Election of Language and Means of 2009-9-16 http://www.hkex.com.hk/index.htm Receipt of Corporate Communication http://www.cosl.com.cn/ to Registered Shareholders Reply Form to Registered Shareholders 2009-9-16 http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-10-5 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 30 September 2009 Notice of Board Meeting 2009-10-14 http://www.sse.com.cn http://www.hkex.com.hk/index.htm http://www.cosl.com.cn/ Announcement of the Results of 2009 China Securities Journal 2009-10-29 http://www.sse.com.cn Fourth Board Meeting of COSL Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ 3rd Quarter report of COSL China Securities Journal 2009-10-29 http://www.sse.com.cn Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/ Monthly Return of Equity Issuer on 2009-11-3 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 31 October 2009 Monthly Return of Equity Issuer on 2009-12-1 http://www.hkex.com.hk/index.htm Movements in Securities for the http://www.cosl.com.cn/ Month Ended 30 November 2009 Announcement of the Results of 2009 China Securities Journal 2009-12-10 http://www.sse.com.cn Fift h Board Meeting of COSL Shanghai Securities News http://www.hkex.com.hk/index.htm Securities Times http://www.cosl.com.cn/

92 China Oilﬁ eld Services Limited Report of the Auditors

Ernst & Young Hua Ming (2010) Shen Zi No. 60569476_A06

To the shareholders of China Oilfi eld Services Limited: We have audited the accompanying fi nancial statements of China Oilfi eld Services Limited (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated and company balance sheets as at 31 December 2009, the consolidated and company income statements, the consolidated and company statements of changes in equity and the consolidated and company cash fl ow statements for the year then ended and notes to these fi nancial statements.

1. Management’s Responsibility for the Financial Statements Th e management of the Company is responsible for the preparation of these ﬁ nancial statements in accordance with the Accounting Standards for Business Enterprises. Th is responsibility includes: (1) designing, implementing and maintaining internal control relevant to the preparation of ﬁ nancial statements that are free from material misstatement, whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances.

2. Auditor’s Responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certifi ed Public Accountants. Th ose standards require that we comply with ethical requirements and plan and perform the audit to obtain a reasonable assurance as to whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. Th e procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, we considers internal control relevant to the entity’s preparation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

3. Opinion In our opinion, the fi nancial statements of the Company and the Group have been prepared in accordance with the Accounting Standards for Business Enterprises, and present fairly, in all material respects, the fi nancial positions of the Group and the Company as of 31 December 2009 and the results of their operations and the consolidated cash fl ows and cash fl ows of the Company for the year then ended.

Ernst & Young Hua Ming Certiﬁ ed Public Accountant Registered in the People’s Republic of China Liu Lei Certiﬁ ed Public Accountant Registered in the People’s Republic of China Zhong Li

Beijing, the People’s Republic of China 30 March 2010

Annual Report 2009 93 Financial Statements (PRC) Consolidated Balance Sheet 31 December 2009 RMB Yuan

31 December 31 December 2009 2008 Assets Note 5 (Restated)

Current Assets Cash on hand and at bank 1 4,222,832,778 4,578,484,264 Notes receivable 2 429,657,902 354,869,985 Accounts receivable 3 3,745,547,364 2,735,024,686 Prepayments 4 528,233,255 1,281,548,540 Interest receivable 5 1,080,000 4,342,362 Dividend receivable 6 23,754,415 16,391,075 Other receivables 7 389,123,571 306,469,550 Inventories 7 820,548,546 780,870,653 Current portion of non-current assets 8 39,081,032 39,117,655

Total current assets 10,199,858,863 10,097,118,770

Non-current Assets Available-for-sale ﬁ nancial assets 9 19,281,034 34,317,535 Held-to-maturity investment 8 39,081,025 78,235,318 Long-term equity investments 11 531,735,085 589,449,106 Fixed assets 12 30,092,311,149 24,137,207,634 Construction in progress 13 14,147,200,718 15,428,949,914 Intangible assets 14 461,844,210 533,599,646 Goodwill 15 4,600,473,214 4,604,785,191 Long-term deferred expenses 16 841,551,247 769,252,771

Total non-current assets 50,733,477,682 46,175,797,115

Total Assets 60,933,336,545 56,272,915,885

94 China Oilﬁ eld Services Limited Financial Statements (PRC) Consolidated Balance Sheet (continued) 31 December 2009 RMB Yuan

31 December 31 December 2009 2008 Liabilities and Shareholders’ Equity Note 5 (Restated)

Current Liabilities Short-term bank borrowings 18 – 6,835,596,924 Notes payable 19 – 366,762,500 Accounts payable 20 3,175,095,974 2,376,732,369 Receipts in advance 21 5,255,901 38,818,223 Staﬀ cost payable 22 477,407,095 485,875,262 Taxes payable 23 153,070,242 343,298,457 Interests payable 24 139,212,858 327,961,642 Other payables 25 358,827,721 636,027,209 Current portion of non-current liabilities 26 283,081,032 943,020,215 Other current liabilities 606,038,526 54,381,067

Total current liabilities 5,197,989,349 12,408,473,868

Non-current Liabilities Derivate ﬁ nancial instruments 27 – 49,307,921 Long-term bank borrowings 28 28,151,039,943 16,355,446,023 Long-term bonds 29 2,670,019,752 4,028,341,874 Deferred tax liabilities 30 1,790,789,029 1,697,131,751 Staﬀ cost payable 22 1,381,058 5,663,626 Other non-current liabilities 31 816,512,769 1,930,706,662

Total non-current liabilities 33,429,742,551 24,066,597,857

Total Liabilities 38,627,731,900 36,475,071,725

Shareholders’ Equity Share capital 32 4,495,320,000 4,495,320,000 Capital reserve 33 8,074,565,726 8,074,565,726 Statutory reserve funds 34 1,335,639,695 1,000,055,668 Retained earnings 35 8,378,412,798 6,208,025,040 Including: Proposed Cash Dividends 36 629,344,800 629,344,800 Cumulative translation reserves 21,666,426 19,877,726

Equity attributable to equity holders of the Parent 22,305,604,645 19,797,844,160 Minority interest – –

Total Shareholders’ Equity 22,305,604,645 19,797,844,160

Total Liabilities and Shareholders’ Equity 60,933,336,545 56,272,915,885

Th e ﬁ nancial statements were signed by the following persons:

Chief Executive Offi cer: Executive Vice President & Chief Financial Offi cer: General Manager (Finance Department): Liu Jian Zhong Hua Liu Zhenyu 30 March 2010 30 March 2010 30 March 2010

Annual Report 2009 95 Financial Statements (PRC) Consolidated Income Statement Year ended 31 December 2009 RMB Yuan

Note 5 2009 2008

Revenue 37 18,345,401,415 12,430,252,591

Less: Operating costs 37 11,688,942,398 7,929,906,369 Business taxes and surcharges 38 466,747,758 287,308,569 Selling expenses 7,455,590 6,206,044 General and administrative expenses 427,995,982 378,653,079 Financial expenses 39 868,061,764 366,105,924 Assets impairment losses 40 879,390,769 159,493,125 Fair value losses 41 – 52,983,938 Add: Investment income 42 159,562,623 89,666,903 Including: Share of proﬁ ts of jointly-controlled entities 110,264,186 215,707,167

Operating proﬁ t 4,166,369,777 3,339,262,446

Add: Non-operating income 43 95,098,628 48,670,373 Less: Non-operating expenses 44 501,869,382 80,646,406 Including: Loss on disposal of non-current assets 19,185,603 55,541,786

Total proﬁ t 3,759,599,023 3,307,286,413

Less: Income tax expenses 45 624,282,438 205,045,264

Net Proﬁ t 3,135,316,585 3,102,241,149

Net proﬁ t attributable to equity holders of the Parent 3,135,316,585 3,102,241,149

Earnings per share

Basic and diluted earnings per share 46 0.70 0.69

Other comprehensive income 47 1,788,700 10,033,616

Total comprehensive income 3,137,105,285 3,112,274,765

Including: Total comprehensive income attributable to equity holders of the Parent 3,137,105,285 3,112,274,765

96 China Oilﬁ eld Services Limited Financial Statements (PRC) Consolidated Statement of Changes in Equity Year ended 31 December 2009 RMB Yuan

2009

Attributable to equity holders of the Parent

Total Share Capital Statutory Retained Minority shareholders’ capital reserve reserve funds earnings Others Sub-total Interests equity

1. 1 January 2009 4,495,320,000 8,074,565,726 1,000,055,668 6,208,025,040 19,877,726 19,797,844,160 – 19,797,844,160

2. Increase/decrease during the year (1) Net proﬁ t – – – 3,135,316,585 – 3,135,316,585 – 3,135,316,585 (2) Other comprehensive income – – – – 1,788,700 1,788,700 – 1,788,700

Total comprehensive income – – – 3,135,316,585 1,788,700 3,137,105,285 – 3,137,105,285

(3) Appropriation of proﬁ ts 1. Transfer to statutory reserve funds – – 335,584,027 （ 335,584,027) – – – – 2. Distribution to shareholders – – – （ 629,344,800 ) – （ 629,344,800) – （ 629,344,800)

3. At the end of the year 4,495,320,000 8,074,565,726 1,335,639,695 8,378,412,798 21,666,426 22,305,604,645 – 22,305,604,645

2008

Attributable to equity holders of the Parent

Total Share Capital Statutory Retained Minority shareholders’ capital reserves reserve funds earnings Others Sub-total interest equity

1. 1 January 2008 4,495,320,000 8,074,565,726 677,614,950 3,967,663,009 9,844,110 17,225,007,795 – 17,225,007,795

2. Increase/decrease during the year (1) Net proﬁ t – – – 3,102,241,149 – 3,102,241,149 – 3,102,241,149 (2) Other comprehensive income – – – – 10,033,616 10,033,616 – 10,033,616

Total comprehensive income – – – 3,102,241,149 10,033,616 3,112,274,765 – 3,112,274,765

(3) Appropriation of proﬁ ts 1. Transfer to statutory reserve funds – – 322,440,718 (322,440,718) – – – – 2. Distribution to shareholders – – – (539,438,400) – (539,438,400) – (539,438,400) (4) Acquisition of a subsidiary – – – – – – 181,033,794 181,033,794 (5) Acquisition of minority interests – – – – – – (181,033,794) (181,033,794)

3. At the end of the year 4,495,320,000 8,074,565,726 1,000,055,668 6,208,025,040 19,877,726 19,797,844,160 – 19,797,844,160

Annual Report 2009 97 Financial Statements (PRC) Consolidated Cash Flow Statement Year ended 31 December 2009 RMB Yuan

Note 5 2009 2008

1. Cash ﬂ ows from operating activities Cash received from sale of goods and rendering of services 16,308,692,327 10,833,451,160 Tax refund received 37,192,542 79,371,980 Cash received relating to other operating activities 58,186,073 22,504,710

Subtotal of cash inﬂ ows from operating activities 16,404,070,942 10,935,327,850

Cash paid for goods and services (6,045,982,971) (3,323,599,106) Cash paid to and for employees (2,938,500,538) (2,130,827,606) Cash paid for taxes (1,242,296,062) (772,859,396) Cash paid relating to other operating activities 48 (572,426,475) (671,379,872)

Subtotal of cash outﬂ ows from operating activities (10,799,206,046) (6,898,665,980)

Net cash ﬂ ows from operating activities 49 5,604,864,896 4,036,661,870

2. Cash ﬂ ows from investing activities Cash received from disposal of investments 39,154,292 3,358,075,649 Cash received from return on investments 218,854,213 159,794,446 Cash received on interest income from bank deposits 63,614,510 183,697,977 Cash received from disposal of ﬁ xed assets 12,670,819 11,694,361 Cash received relating to other investing activities 7,291,552 –

Subtotal of cash inﬂ ows from investing activities 341,585,386 3,713,262,433

Cash paid for acquisition of ﬁ xed assets, intangible assets and other long-term assets (7,398,673,060) (7,630,571,357) Cash paid for acquisition of long-term investments (424,884) (15,647,032,930) Cash paid for acquisition of other investments (725,197,031) (1,060,000,000)

Subtotal of cash outﬂ ows from investing activities (8,124,294,975) (24,337,604,287)

Net cash ﬂ ows from investing activities (7,782,709,589) (20,624,341,854)

3. Cash fl ows from fi nancing activities: Cash received from scientifi c research grants 100,720,000 55,040,000 Cash received from new borrowings and bonds issue 23,227,900,560 15,781,718,567

Subtotal of cash inﬂ ows from ﬁ nancing activities 23,328,620,560 15,836,758,567

Cash paid for repayment of borrowings (20,177,338,947) (570,865,000) Cash paid for dividends (629,344,800) (539,438,400) Cash paid for interest expenses (1,318,422,624) (408,705,878) Cash paid relating to other ﬁ nancing activities (66,697,600) (77,872,754)

Subtotal of cash outﬂ ows from ﬁ nancing activities (22,191,803,971) (1,596,882,032)

Net cash ﬂ ows from ﬁ nancing activities 1,136,816,589 14,239,876,535

4. Eﬀ ect of foreign exchange rate ﬂ uctuation on cash (39,857,037) (153,830,399)

5. Net decrease in cash and cash equivalents (1,080,885,141) (2,501,633,848)

Add: Cash and cash equivalents at the beginning of year 4,295,488,052 6,797,121,900

6. Cash and cash equivalents at the end of year 50 3,214,602,911 4,295,488,052

98 China Oilﬁ eld Services Limited Financial Statements (PRC) Balance Sheet 31 December 2009 RMB Yuan

31 December 31 December Assets Note 11 2009 2008

Current Assets Cash on hand and at bank 2,555,012,686 3,042,002,086 Notes receivable 429,657,902 354,869,985 Accounts receivable 1 4,197,063,076 3,316,608,684 Prepayments 489,374,487 1,230,299,627 Interest receivable 1,080,000 3,024,938 Dividend receivable 23,754,415 16,391,075 Other receivables 2 965,033,453 527,892,570 Inventories 617,242,127 650,306,338

Total current assets 9,278,218,146 9,141,395,303

Non-current Assets Long-term receivables 20,450,459,000 – Long-term equity investments 3 7,231,157,657 7,216,576,177 Fixed assets 13,296,788,952 10,289,703,965 Construction in progress 5,397,656,694 4,217,663,329 Intangible assets 317,392,113 324,345,191 Long-term deferred expenses 808,203,334 754,460,662

Total non-current assets 47,501,657,750 22,802,749,324

Total assets 56,779,875,896 31,944,144,627

Annual Report 2009 99 Financial Statements (PRC)

Balance Sheet

31 December 2009 RMB Yuan

31 December 31 December Liabilities and Shareholders’ Equity Note 11 2009 2008

Current liabilities Notes payable – 366,762,500 Accounts payable 2,707,769,658 2,042,417,318 Receipts in advance 5,255,901 38,778,581 Staﬀ cost payable 433,104,738 420,782,578 Taxes payable 122,947,646 249,251,395 Interests payable 81,561,535 49,579,424 Other payables 197,613,352 127,892,339 Current portion of non-current liabilities 244,000,000 244,000,000 Other current liabilities 44,213,902 54,175,828

Total current liabilities 3,836,466,732 3,593,639,963

Non-current Liabilities Long-term bank borrowings 28,111,958,918 6,367,680,000 Long-term bonds 1,500,000,000 1,500,000,000 Deferred tax liabilities 365,889,553 281,827,779 Other non-current liabilities 36,565,316 –

Total non-current liabilities 30,014,413,787 8,149,507,779

Total Liabilities 33,850,880,519 11,743,147,742

Shareholders’ Equity Share capital 4,495,320,000 4,495,320,000 Capital reserve 8,074,565,726 8,074,565,726 Statutory reserve funds 1,335,639,695 1,000,055,668 Retained earnings 9,027,158,354 6,636,246,905 Including: Proposed Cash Dividends 629,344,800 629,344,800 Cumulative translation reserves (3,688,398) (5,191,414)

Total Shareholders’ Equity 22,928,995,377 20,200,996,885

Total Liabilities and Shareholders’ Equity 56,779,875,896 31,944,144,627

Th e ﬁ nancial statements were signed by the following persons:

Chief Executive Offi cer: Executive Vice President & Chief Financial Offi cer: General Manager (Finance Department): Liu Jian Zhong Hua Liu Zhenyu 30 March 2010 30 March 2010 30 March 2010

100 China Oilﬁ eld Services Limited Financial Statements (PRC) Income Statement Year ended 31 December 2009 RMB Yuan

Note 11 2009 2008

Revenue 4 13,497,409,427 10,462,547,470

Less: Operating costs 5 8,762,688,740 6,564,680,493 Business taxes and surcharges 371,912,155 286,405,749 Selling expenses 3,688,387 3,106,140 General and administrative expenses 252,368,383 278,556,547 Financial expenses 455,591,223 193,443,623 Assets impairment losses 40,648,494 52,984,907 Add: Investment income 6 198,623,003 238,225,395 Including: Share of proﬁ ts of jointly-controlled entities 187,623,003 208,246,552

Operating proﬁ t 3,809,135,048 3,321,595,406

Add: Non-operating income 72,098,668 48,670,373 Less: Non-operating expenses 31,272,666 77,577,259 Including: Loss on disposal of non-current assets 19,145,693 52,484,965

Total proﬁ t 3,849,961,050 3,292,688,520

Less: income tax expenses 494,120,774 68,281,342

Net proﬁ t 3,355,840,276 3,224,407,178

Other comprehensive income 1,503,016 (6,543,038)

Total comprehensive income 3,357,343,292 3,217,864,140

Annual Report 2009 101 Financial Statements (PRC) Statement of Changes in Equity Year ended 31 December 2009 RMB Yuan

2009

Total Share Capital Statutory Retained shareholders’ capital reserve reserve funds earnings Others equity

1. 1 January 2009 4,495,320,000 8,074,565,726 1,000,055,668 6,636,246,905 (5,191,414) 20,200,996,885

2. Increase/decrease during the year (1) Net proﬁ t – – – 3,355,840,276 – 3,355,840,276 (2) Other comprehensive income – – – – 1,503,016 1,503,016

Total comprehensive income – – – 3,355,840,276 1,503,016 3,357,343,292

(3) Appropriation of proﬁ ts 1. Transfer to statutory reserve funds – – 335,584,027 (335,584,027) – – 2. Distribution to shareholders – – – (629,344,800 ) – (629,344,800)

3. At the end of the year 4,495,320,000 8,074,565,726 1,335,639,695 9,027,158,354 (3,688,398) 22,928,995,377

2008

Total Share Capital Statutory Retained shareholders’ capital reserve reserve funds earnings Others equity

1. 1 January 2008 4,495,320,000 8,074,565,726 677,614,950 4,273,718,845 1,351,624 17,522,571,145

2. Increase/decrease during the year (1) Net proﬁ t – – – 3,224,407,178 – 3,224,407,178 (2) Other comprehensive income – – – – (6,543,038 ) (6,543,038 )

Total comprehensive income – – – 3,224,407,178 (6,543,038 ) 3,217,864,140

(3) Appropriation of proﬁ ts 1. Transfer to statutory reserve funds – – 322,440,718 (322,440,718) – – 2. Distribution to shareholders – – – (539,438,400) – (539,438,400)

3. At the end of the year 4,495,320,000 8,074,565,726 1,000,055,668 6,636,246,905 (5,191,414 ) 20,200,996,885

102 China Oilﬁ eld Services Limited Financial Statements (PRC) Cash Flow Statement Year ended 31 December 2009 RMB Yuan

2009 2008

1. Cash ﬂ ows from operating activities Cash received from sale of goods and rendering of services 12,099,324,433 8,743,863,684 Tax refund received 2,512,447 79,371,980 Cash received relating to other operating activities 65,479,634 40,595,110

Subtotal of cash inﬂ ows from operating activities 12,167,316,514 8,863,830,774

Cash paid for goods and services (3,855,557,460) (3,008,519,342) Cash paid to and for employees (2,035,099,099) (1,691,694,557) Cash paid for taxes (918,501,797) (661,559,392) Cash paid relating to other operating activities (356,029,126) (519,234,225)

Subtotal of cash outﬂ ows from operating activities (7,165,187,482) (5,881,007,516)

Net cash ﬂ ows from operating activities 5,002,129,032 2,982,823,258

2. Cash ﬂ ows from investing activities Cash received from disposal of investments – 3,360,755,000 Cash received from return on investments 177,047,269 159,794,446 Cash received on interest income from bank deposits 30,142,572 147,271,263 Cash received from disposal of ﬁ xed assets 9,207,675 9,684,256

Subtotal of cash inﬂ ows from investing activities 216,397,516 3,677,504,965

Cash paid for acquisition of ﬁ xed assets, intangible assets and other long-term assets (5,988,642,838) (7,060,652,414) Cash paid for other investment activities (20,450,459,000) – Cash paid for long term investments (424,884) (6,827,665,500) Cash paid for acquisition of other investments (531,654,000) (1,060,000,000)

Subtotal of cash outﬂ ows from investing activities (26,971,180,722) (14,948,317,914)

Net cash ﬂ ows from investing activities (26,754,783,206) (11,270,812,949)

3. Cash fl ows from fi nancing activities Cash received from scientifi c research grants 100,720,000 55,040,000 Cash received from new borrowings and bonds issue 22,792,070,000 5,867,600,000

Subtotal of cash inﬂ ows from ﬁ nancing activities 22,892,790,000 5,922,640,000

Cash paid for repayment of borrowings (944,000,000) (400,000,000) Cash paid for dividends (629,344,800) (539,438,400) Cash paid for interest expenses (504,568,166) (192,894,262) Cash paid relating to other ﬁ nancing activities (66,697,600) (54,676,000)

Subtotal of cash outﬂ ows from ﬁ nancing activities (2,144,610,566) (1,187,008,662)

Net cash ﬂ ows from ﬁ nancing activities 20,748,179,434 4,735,631,338

4. Eﬀ ect of foreign exchange rate ﬂ uctuation on cash (15,653,542) (40,322,350)

5. Net decrease in cash and cash equivalents (1,020,128,282) (3,592,680,703)

Add: Cash and cash equivalents at the beginning of year 2,770,238,786 6,362,919,489

6. Cash and cash equivalents at the end of year 1,750,110,504 2,770,238,786

Annual Report 2009 103 Financial Statements (PRC) Notes to the Financial Statements 31 December 2009 RMB Yuan

1. General Information of the Group The establishment of China Oilfield Services Limited (the “Company”) by China National Offshore Oil Corporation (“CNOOC”) with a registered capital of RMB2,600 million was approved by the State Economic and Trade Commission on 20 September 2002 vide Guo Jingmao Qigai (2002) No.694. On the date of incorporation of the Company, CNOOC contributed the net assets as owned by itself and the equity of the relevant companies held by its subsidiaries, based on valuations as of 30 April 2002 (the base date for the reorganization), equivalent to RMB2,600 million in the form of domestic state-owned legal person shares and RMB1,356.6543 million in the form of capital reserves of the Company as the capital investment. The Company has been registered as a joint stock limited liability company in the Peoples Republic of China (“PRC”) on 26 September 2002 (registration number of 1000001003612); its business scope principally covers the provisions of the services for surveying, exploration, well drilling, development and exploitation for oil, gas and other minerals as well as providing vessel services. The registered office address of the Company is No.3-1516, Hebei Road, Haiyang New and Hi-tech Development Zone, Tanggu, Tianjin, PRC. Based on the approval by China Securities Regulatory Commission (“CSRC”) vide Zhengjian Faxing Zi (2002) No.30 dated 11 October 2002, the Company issued 1,395,320,000 shares of foreign capital ordinary shares with par value of RMB1 each and at the price of HK$1.68 per share. Besides, 139,532,000 shares of state-owned shares were sold at the price of HK$1.68 per share. All such shares were purchased in Hong Kong dollar and were listed at Hong Kong Stock Exchange on 20 November 2002. The registered capital of the Company was changed to RMB3,995,320,000 and the share capital amount was RMB3,995,320,000 of RMB1 per share, among which, the state promoter, CNOOC, held 2,460,468,000 shares of state-owned legal person shares while the public held 1,534,852,000 shares of overseas listed foreign capital shares. Based on the approval by CSRC vide Zhengjian Faxing Zi (2007) No.284 dated 11 September 2007, the Company was authorised to issue 500,000,000 ordinary A shares (“ordinary shares”) which were listed at Shanghai Stock Exchange on 28 September 2007 at the issue price of RMB13.48 per share; after deduction of relevant listing expenses, the net amount raised through the issuance of A share was RMB6,598,755,426. After such public offer of ordinary shares, the registered capital of the Company changed to RMB4,495,320,000 and the share capital amount was RMB4,495,320,000 with par value of RMB1 per share, among which, CNOOC held 2,460,468,000 shares of state-owned legal person share while the public held 1,534,852,000 shares of overseas listed foreign capital shares and 500,000,000 shares of RMB ordinary shares. The parent company and the ultimate company of the Company is China National Offshore Oil Corporation, a company incorporated in PRC. 2. Significant accounting policies and accounting estimates (1) Basis of preparation of financial statements These financial statements have been prepared in accordance with the Basic Standard and 38 specific standards of the Accounting Standards for Business Enterprises issued by the Ministry of Finance in February 2006, and the application guidance, interpretations and other related regulations issued subsequently (collectively as the “Accounting Standards for Business Enterprises” or “CAS”). These financial statements are presented on the going concern basis. The financial statements are prepared under the historical cost convention except for certain financial instruments. In case of impairment, the corresponding impairment provision shall be accrued based on the relevant regulations. (2) Statement of compliance with the Accounting Standards for Business Enterprises These financial statements comply with the requirements of the Accounting Standards for Business Enterprises and fairly and completely reflect the financial positions of the Group and the Company as at 31 December 2008 and their operating results and cash flows for the year then ended. (3) Accounting Year The accounting year of the Group is from 1 January to 31 December. (4) Functional currency These financial statements are presented in Renminbi (“RMB”), which is the Company’s functional and presentation currency. All values are presented to the nearest Yuan, except when otherwise indicated. The subsidiaries and jointly-controlled entities of the Group determine its own functional currency based on the business environment and are translated to RMB in preparing these financial statements.

104 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (5) Business combination Business combination represents a transaction or matter of combining two or more individual enterprises into one reporting entity. Business combination comprises business combination under common control and business combination not under common control. The Company conducted only business combination not under common control for the relevant financial reporting period. Business combinations involving enterprises not under common control A business combination involving entities not under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the business combination. In such case, the entity that acquires the controlling right over the other entity on the date of business combination is the acquirer while the other entity is the acquiree. The acquisition date is the date on which the acquirer effectively obtains controls of the acquiree. For business combination not under common control, the cost of combination in exchange for control of the acquiree plus costs directly attributable to the business combination includes assets given by the acquirer, equity instruments issued and liabilities incurred and assumed are measured at the fair value at the acquisition date. Adjustments for cost of combination which are likely to occur and can be measured reliably will be recognized as contingent consideration. Subsequent adjustments will impact on the goodwill. For a business combination achieved in stages by successive exchange, the cost of combination is the aggregate costs of individual transactions. If the business combination agreement provides for adjustments to the cost of combination that are contingent on one or more future events, and on the date of acquisition the future events are probable and the amount can be measured reliably, the adjustments should be included in the cost of combination. The identifiable assets, liabilities or contingent liabilities under business combination not under common control shall be measured at fair value on the date of acquisition. Any excess of cost of a business combination over the acquirer’s interest in the fair value of the acquiree’s identifiable net assets is recorded as goodwill. If the acquirer’s interest in the fair value of the acquiree’s identifiable net assets exceeds the cost of business combination, the fair value of the identifiable assets, liabilities or contingent liabilities as well as the cost of business combination is reassessed and after reassessment, any excess of the acquirer’s interest in the fair value of the acquiree’s identifiable net assets over the cost of business combination is recognized in the consolidated income statement. (6) Consolidated financial statements The consolidation scope is determined based on the control, the consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2009. Subsidiaries represent entities controlled by the Company. When preparing the consolidated financial statements, same accounting period is applied to subsidiaries and the Company, any potential differences in accounting policies applied by the subsidiaries are adjusted in accordance with the accounting policies of the Company. All income, expenses and unrealized gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full. Minority interests represent interests not held by the Group in the results and net assets of the Company’s subsidiaries and are disclosed separately in the consolidated financial statements. When the Company prepares consolidated financial statements, an acquisition of minority interests is accounted for by taking the difference between the long-term equity investment and the book value of the share of the net assets acquired to capital reserve, and in the event that the capital reserve is not sufficient to make this adjustment, the difference is adjusted to retained earnings. Where the Company combines a subsidiary during the reporting period through a business combination involving entities not under common control, the results and cash flows of the subsidiary are consolidated from the date of acquisition, being the date on which the Group obtains the control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, the identifiable assets, liabilities and contingent liabilities of the subsidiary are consolidated from the date that control commences, base on the fair value of those identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. (7) Cash and cash equivalents Cash represents cash on hand and bank deposits which can be used for payment at any time; cash equivalents represent short- term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Annual Report 2009 105 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (8) Foreign currency business and foreign currency statement translation The Group converts the amount of foreign currency transactions in to its functional currency. Foreign currency transactions are initially recorded using the functional currency rate of exchange on the first day of the month of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to the consolidated income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using exchange rate at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined, and the differences are taken to the consolidated income statement or other comprehensive income. The functional currencies of certain overseas subsidiaries and jointly-controlled entities are currencies other than RMB. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date, the shareholders’ equity other than retained profits are translated into RMB at the spot exchange rate at the date of the transactions, and their income statements are translated into RMB at the average exchange rates for the year. The resulting exchange differences are recognized as other comprehensive income and presented as a separate item in the balance sheet under shareholders’ equity. On disposal of a foreign entity, the other comprehensive income amount relating to that particular foreign operation is recongnized in the consolidated income statement. Cash flows in foreign currency and cash flows of overseas subsidiaries are translated into RMB at the average exchange rate for the year. Effect of foreign exchange rate fluctuation on cash is are separately disclosed in consolidated cash flow statements. (9) Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Recognition and derecognition of financial assets The Group recognizes a financial asset or a financial liability on its balance sheet when, and only when, the Group becomes a party to the contractual provisions of the instrument. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized where: (1) the rights to receive cash flows from the asset have expired; (2) the Group has transferred its rights to receive cash flows from the asset, or has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; and (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in the consolidated income statement. All regular way purchases and sales of financial assets are recognized on the trade date, the day that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Category and measurement of financial assets Financial assets of the Group are categorized into the following categories upon initial recognition: financial assets at fair value through profit or loss; held-to-maturity investments; loans and receivables; available-far-sale financial assets; derivatives designated as effective hedging instruments. The Group determines the categorization of the financial assets at initial recognition. When financial assets are recognized initially, they are measured at fair value. In the case of investments not at fair value through profit or loss, fair value plus directly attributable transaction costs. Financial assets of the Group include: cash on hand and at bank, notes receivable, accounts receivable, interest receivable, dividend receivable, other receivables, current portion of non-current assets, available-for-sale financial assets and held-to-maturity investment.

106 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (9) Financial instruments (continued) Category and measurement of financial assets (continued) The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and those measured at fair value through profits and losses designated upon initial recognition. Financial assets are classified as held for trading if it satisfies one of the following conditions: the purpose to acquire such financial financial assets is to sell in the near term; belonging to part of identifiable combined financial instruments and objective evidence exists that it is acquired principally for the purpose of obtaining profit in the near term; derivatives, are also classified as held for trading unless they are designed as effective hedging instruments, financial guarantee agreement, or related to an equity instrument which has no quoted market price, its fair value cannot be measured reliably and settled through exchange of the equity instrument. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in the consolidated income statement. Dividends or interest income derived from financial assets at fair value through profit or loss are recognized in the consolidated income statement. If a financial asset is classified as financial asset at fair value through profit or loss at initial recognition, it can’t be reclassified as other category of financial assets and other financial assets can’t be reclassified as financial asset at fair value through profit or loss as well. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Held-to-maturity investments are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated income statement when the investments are derecognized or impaired, as well as through the amortization process. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortized cost using the effective interest rate method less any allowance for impairment. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in finance costs in the income statement. The loss arising from impairment is recognized in the consolidated income statement. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the above categories. After initial recognition, such financial assets are measured at fair value. Its discount or premium is amortized using effective interest rate method and recognized as interest income or expense. Except for impairment loss and exchange differences of monetary financial assets denominated in foreign currency which are recognised in the consolidated income statement, changes in fair value of available-for-sale financial assets are recognized as other comprehensive income in the capital reserve until the investment is derecognized or there is an impairment, then the cumulative gain or loss will be included in the consolidated income statement. Interests and dividends earned are reported as interest income and dividend income, respectively and are recognized in the consolidated income statement. When the fair value of unlisted equity securities cannot be reliably measured, such securities are stated at cost. Category and measurement of financial liabilities The financial liabilities of the Group are classified initially as financial liabilities at fair value through profit or loss, other financial liabilities and derivatives designated as hedging instruments in an effective hedge. The transaction costs of financial liabilities at fair value through profit or loss are charged to the consolidated income statement, while the transaction costs of other financial liabilities are recognized as part of the initial amount of liabilities. Financial liabilities of the Group include: short-term bank borrowings, notes payable, accounts payable, interest payable, other payables, current portion of non-current liabilities, derivative financial instruments, long-term bank borrowings and long-term bonds.

Annual Report 2009 107 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (9) Financial instruments (continued) Category and measurement of financial liabilities (continued) The measurement of financial liabilities depends on their classification as follows: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit and loss. Financial liabilities are classified as held for trading if they satisfy one of the following conditions: they are acquired for the purpose of sale in the near term, belong to a part of identifiable combined financial instruments which are managed centrally and objective evidence exists that they are acquired principally for the purpose of obtaining profit in the near term; belong to derivatives, unless those are designated as effective hedging instruments, under financial guarantee agreements or related to equity instruments without quoted market price, its fair values of which cannot be measured reliably and settled through exchanges of the equity instruments. These financial liabilities are subsequently measured at fair value, and all the realized or unrealized gains or losses are recognized in the consolidated income statement. If a financial liability is classified as financial liabilities at fair value through profit or loss at initial recognition, it cannot be reclassified as other financial liabilities; other financial liabilities cannot be reclassified as financial liability at fair value through profit or loss as well. Other financial liabilities The financial liabilities are subsequently measured at amortized cost using effective interest method. Derivative financial instruments The Group uses forward currency contracts and forward currency contracts and interest rate swap to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. However, the derivative financial instrument is measured by cost method, if there is no quoted market price and its fair value cannot be measured reliably. Except for the effective portions of the cash flow hedges which are recognized as other comprehensive income, any gains or losses arising from changes in fair value on derivatives are taken directly to the consolidated income statement. Fair value of financial instruments The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid price. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models. Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists, impairment loss will be provided. There is objective evidence that an impairment loss exists when the present value of the estimated future cash flows is adversely affected after initial recognition, and the amount can be measured reliably.

108 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (9) Financial instruments (continued) Impairment of financial assets (continued) Financial assets carried at amortized cost If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate, (i.e., the effective rate computed initial recognition) after taking into consideration of the value of the collaterals, if any. In respect of floating interest rate, the current effective interest rate is used as the discount rate in calculating the present future cash flow Where impairment is assessed on an individual basis for individually significant financial assets, an impairment loss is recognized in the consolidated income statement when there is objective evidence that an impairment loss has been incurred. For the financial assets without impairment loss based on individual test, an assessment is made collectively for financial assets which share similar credit risk characteristics. For financial assets with impairment loss recognized based on individual test basis, another assessment is not required to be made collectively for the financial assets which share similar credit risk characteristics If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the consolidated income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Available-for-sale financial assets If there is objective evidence that an available-for-sale asset is impaired, accumulated losses arising from decreases in fair values will be removed from other comprehensive income and recognized in the profit or loss. Accumulated losses represent an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the consolidated income statement. Impairment loss on debt instruments can be reversed through the profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized. Impairment losses on equity instruments are not reversed through the profit or loss. An increase in fair value after impairment is recognized as other comprehensive income. Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed. According to the Accounting Standards for Business Enterprises No. 2 – Long-term Equity Investment, the above accounting principle should also apply to the long-term equity investment under cost method whose active market price and fair value cannot be reliably measured. (10) Receivables The Company recognizes a bad debt when a trade debtor is bankrupt or dead and his/her debt is unable to be recovered even after paying off the debt from the insolvent assets or heritage; or when a debtor fails to make repayment as agreed and there is obvious evidence that the related account receivable is not recoverable, it will be recognized as a bad debt after obtaining the Company’s approval. At each balance sheet date, the Company performs separate impairment tests for significant receivables individually. Where there is objective evidence of impairment, the difference between discounted present value of future cash flow and the carrying amount is recognized as the impairment loss and bad debt provision is made. Individually insignificant receivables, together with receivables with no indication of impairment shall be assessed collectively in groups according to their aging, and a certain portion of the receivable group balances shall be recognized as impairment amount and related bad debt provision shall be provided. Provision ratios of bad debts are generally as follow:

Account receivables Other receivables Provision ratio (%) Provision ratio (%)

Within 1 year 0 0 1-2 years 30 30 2-3 years 60 60 Over 3 year 100 100

Annual Report 2009 109 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (11) Inventories Inventories consist of materials and supplies used for the repairs and maintenance of plant and equipment and daily operations. Inventories are stated at cost initially. Inventories costs comprise purchase cost. The actual cost of transfer or delivery of inventories is determined by weighted average method. The Group adopts inventory perpetual physical count method. On balance sheet date, inventories are stated at the lower of cost and net realisable value, the excess of the cost over the net realisable value of the inventories is recognized as a provision for diminution in the value of inventories in the consolidated income statement. If the factor for diminution in the value of inventories disappears and the net realisable value of inventories is higher than its carrying amount, the provision previously recognized can be reversed in the consolidated income statement to the extent of the previously recognized provision amount. Net realisable value is based on the estimated selling price in the ordinary course of business, less any estimated costs to completion and estimated costs necessary to make the sale and relevant taxes. Inventories provision is made according to category of inventories. (12) Long-term equity investments Long-term equity investments comprise equity investments in subsidiaries, long-term equity investments in its jointly-controlled entities as well as other long-term equity investments where the Group does not have control, joint control or significant influence over the investees, and which are not quoted in an active market and whose fair value cannot be reliably measured. The initial recognition of long-term equity investment is measured at initial investment cost upon acquisition. For business combination under common control, the initial investment cost is the share of the investee’s equity. For business combination not under common control, the initial investment cost is the combination cost. For the long-term equity investment acquired by a way other than business combination, the initial investment cost is recognized as follows: for a long-term equity investment acquired by cash payment, the initial investment cost shall be the actual purchase price, and those costs, taxes and other necessary expenditures directly attributable to the acquisition of the long-term equity investment. For a long-term equity investment acquired by the issue of equity securities, the initial investment cost shall be the fair value of the securities issued. For the long- term equity investment made by investors, the initial investment cost is determined based on the amount as agreed in the investment contract or agreement, unless the amount agreed does not represent the fair value. Other long-term equity investments where the Group does not have control, joint control or significant influence over the investee, not quoted in an active market and whose fair value cannot be reliably measured, are accounted for using the cost method. Long-term equity investments where the Company has the control over the investees are accounted for using the cost method when preparing the financial statements of the Company. When cost method is used, long-term equity investments are measured at initial investment costs. Cash dividends or profit appropriation declared by the investees are recognized as investment income in the current period, except for the declared but unpaid parts of the cash dividends or profit appropriation which were included in the cash payment for acquiring the investment. Impairment is tested for long-term investments in accordance with the relevant asset impairment policies. When the Group has joint control or significant influence over the investees, the Group’s interests in these entities are accounted for using equity accounting method. Joint control represents the contractually agreement in sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers). Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. When equity accounting method is used, where the initial investment cost exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially measured at cost. Where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is included in the consolidated income statement for the current period and the cost of the long-term equity investment is adjusted accordingly.

110 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (12) Long-term equity investments (continued) The Group’s share of net profit or loss of the investee is determined based on the fair value of identifiable assets of investee on the acquisition date and the Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated income statement and consolidated reserves, respectively. Unrealized gains and losses resulting from transactions between the Group and its jointly-controlled entities are eliminated to the extent of the Group’s interests in the jointly-controlled entities, except where unrealized losses provide evidence of an impairment of the asset. The carrying amount of the investment is reduced by the Group’s share of the profit distribution or cash dividends declared by an investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of the long-term equity investment together with any long-term interests that, in substance, form part of the Group’s net investment in the investee are reduced to zero, except to the extent that the Group has an obligation to assume additional losses. For changes in owner’s equity of the investee other than those arising from its net profit or loss, the Group records directly in equity its share of net book value changes and charges to the profit or loss when the investment is disposed. When long-term equity investment is disposed, the differences between carrying amount and actual consideration received are recognized in the income statement. If long-term equity investments are accounted for using equity accounting, on disposal, the amounts previously recognized in equity and disposed portion are transferred to the profit or loss. For the details of impairment test and provision for long term equity investments related to subsidiaries, jointly-controlled entities and associates, please refer to Note 2 (26). For details of impairment test and provision for other long-term equity investments without quoted price in the active market and fair values of which cannot be measured reliably, please refer to Note 2 (9). (13) Fixed assets Fixed assets are tangible assets that are used in production, provision of services, for rental to others, or held for administrative purposes, which have useful lives of more than one year. Fixed assets shall be recognized if, and only if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. For subsequent expenditures of fixed assets, if the recognition conditions are satisfied, they are recognized as cost of fixed assets and the carrying amount of replaced components is derecognized. Otherwise, it is normally charged to the consolidated income statement in the period in which it is incurred. Fixed assets are measured at cost initially, the cost of fixed assets comprises purchase price, including relevant taxes, and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation is calculated on the straight-line basis to write off the cost of each item of fixed assets to its residual value over its estimated useful life. The estimated useful lives, estimated residual value and annual depreciation rates of fixed assets are as follows:

Estimated Annual residual value depreciation Category Useful lives rates rates

Buildings 20 years 10% 4.5% Tank and Vessels 10-20 years 10% 4.5%-9% Drilling rigs (including components) 25-30 years 10% 3%-3.6% Machinery and equity 5-10 years 10% 9%-18% Motor Vehicles 5 years 10% 18%

Where parts of an item of fixed assets have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual value, useful lives and depreciation method are reviewed, and adjusted if appropriate, at least at each balance sheet date. For details of impairment test and provision methods of fixed assets, please refer to Note 2 (26).

Annual Report 2009 111 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (14) Construction in progress The cost of construction in progress is determined by actual construction expenditures, which comprise the direct expenditures of construction, capitalised borrowing costs before the construction is ready for use and other relevant expenses. Construction in progress is reclassified to the appropriate category of fixed assets or intangible assets when completed and are ready for use. For details of impairment test and provision methods of construction in progress, please refer to Note 2 (26). (15) Borrowing costs Borrowing costs refer to the interest on or other cost of loan borrowed by the Group, including interest, amortization of discount or premium, auxiliary expenses and exchange difference from loans in foreign currency, etc. Borrowing costs directly attributable to the construction of qualifying assets, are capitalised as part of the cost of the assets. Except for the above other borrowing costs are recognized as financial expenses in the consolidated income statement when incurred. Borrowing costs are capitalised when satisfying all of the following conditions: – Capital expenditure were incurred; – Borrowing costs were incurred; – Construction activities for the assets to be ready for use have started. The capitalisation of such borrowing costs ceases when the qualifying assets are substantially ready for their intended use or sale, subsequent borrowing costs are charged to the consolidated income statement. In the capitalisation period, the amount of interest to be capitalised in each accounting period is determined as follows: – where funds are borrowed specifically for the construction of a qualifying asset, the amount of interest to be capitalised is the interest expense incurred during the period less any interest income earned from depositing the borrowed funds or any investment income on the temporary investment of those funds before being used on the asset;

– where funds are borrowed generally and used for the construction of a qualifying asset, the amount of interest to be capitalised on such borrowings is determined by applying a capitalisation rate to the weighted average of the excess amounts of cumulative expenditure on the asset over the above amounts of specific borrowings. The capitalisation period is the period from the date of commencement of capitalisation of borrowing costs to the date of cessation of capitalisation, excluding any period over which capitalisation is suspended. Capitalisation of borrowing costs is suspended when the construction activities are interrupted abnormally and the interruption lasts over three months and the borrowing costs are recognized in the consolidated income statement until the construction activities resume. (16) Intangible assets The intangible assets of the Group are initially measured at cost. The useful lives of intangible assets are determined on the basis of useful economic life. If it is impossible to forecast the useful economic life, it is regarded as intangible asset with indefinite useful lives. The useful lives of various intangible assets are presented as follows:

Useful lives

Land use rights 50 years Management system 10 years Software 3-5 years Contract value Contract period

The land use rights acquired by the Group are generally accounted for as intangible assets. Or self development and construction of plant and buildings, the related land use rights and buildings are accounted for as intangible assets or fixed assets respectively. The amortisation period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date.

112 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (16) Intangible assets (continued) The Group categorizes the research and development costs into research costs and development costs. All research costs are charged to the consolidated income statement as incurred. Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred. For details of impairment test and provision methods of intangible assets, please refer to Note 2 (26). (17) Long-term deferred expenses The long-term deferred expenses are amortized using straight-line method, with amortization period as follows:

Amortization Period

Large scale drilling tools for specific purposes, logging tools and vessel cables 3 years

(18) Provision A provision is recognized when: – a present obligation has arisen as a result of a past event; – it is probable that a future outflow of resources will be required to settle the obligation; and – a reliable estimate can be made of the amount of the obligation. Provisions are initially measured based on the best estimate of the expenditure for performing the current obligation, taking into account the related risks, uncertainties and time value factor. At each balance sheet date, the amount of provisions is reassessed and if there is solid evidence that the carrying value cannot reflect the best estimate, the provisions should be adjusted based on the best estimate. Contingent liabilities of the acquiree acquired in business combination are measured at fair value upon initial recognition. Subsequent measurement will be the higher between the amount of provision and the net value of initial recognition less accumulated amortization amount determined by revenue recognition principle. (19) Share appreciation right payment settled in cash The Company operates a share appreciation rights plan (the “SAR Plan”) for its senior officers. The purpose of the SAR Plan is to provide incentives and rewards to eligible participants who contribute to the success of the Group’s operations which is considered as share appreciation right payment settled in cash. For details of the SAR Plan, please refer to Note 5 (52). The fair value is expensed over the period until vesting with recognition of a corresponding liability. The cost of cash-settled transactions is measured initially at fair value at the grant date using the Black-Scholes formula, taking into account the terms and conditions upon which the instruments were granted. The liability is measured at the end of each reporting period up to and including the settlement date with changes in fair value recognised in the consolidated income statement. (20) Revenue Revenue is recognized when it is probable that the economic benefit will flow to the Group, the revenue can be reliably measured and the following conditions are satisfied. Revenue from rendering of services Revenue relating to day rate contracts is recognized when services are rendered. Construction contract On the balance sheet date, when the outcome of a construction contract can be estimated reliably, contract revenue and contract expenses are recognized based on percentage of completion method; otherwise, the revenue is recognized on the basis of actual cost incurred and expected to be compensated. The outcome of a construction contract can be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the Group, and both the contract costs to complete the contract and the stage of contract completion at the balance sheet date can be measured reliably. In respect of fixed price construction contracts, the following conditions should be fulfilled: total contract revenue can be measured reliably and both the contract costs to complete the contract and the stage of contract completion can be measured reliably. The Group recognizes the stage of contract completion based on the actual stage of completion measured. Total contract revenue comprises the initial revenue agreed in the contract and the revenue from variation orders, claims and incentive payments.

Annual Report 2009 113 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (20) Revenue (continued) Interest income Interest income is recognized on a time proportion basis and the applicable effective interest rate. Rental income Rental income under operating lease is recognized on a straight-line basis over the rental periods of such charters contingent rentals are credited to the income statement when they are incomed. (21) Government Grant Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attached conditions can be complied with. If the fair value could not be reasonably determined, the government grant is measured based on the nominal value. Where the grant relates to an expense item, it is recognized as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant is for compensation of expenses or losses incurred, the grant is recongnised in the current period’s consolidated income statement. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual installments. Government grants measured based on the nominal value are recognized in the consolidated income statement directly. (22) Income tax Income tax comprises current and deferred tax. Income tax is recognized in the consolidated income statement as a tax expense or income, except that it is a goodwill adjustment arising from business combination, or items directly recognized in equity, in which case they are recognized in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. Deferred tax is provided using the liability method, on all temporary difference at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: (1) where the taxable temporary difference arises from the initial recognition of goodwill, or initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) in respect of taxable temporary differences associated with investments in subsidiaries, interests in jointly-controlled entities and investments in associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except: (1) where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) in respect of deductible temporary differences associated with investments in subsidiaries, interests in jointly-controlled entities and investments in associates, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

114 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (22) Income tax (continued) Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. The Group reassesses unrecognized deferred tax assets at each balance sheet date and recognizes deferred tax asset to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Where the taxable entity has a statutory right to set off current tax assets against current tax liabilities, and the deferred tax is related to the same taxable entity and the same tax authority, the net deferred tax assets or deferred tax liabilities will be presented in the financial statements. (23) Lease Leases where substantially all the risks and rewards of ownership of assets were transferred to the lessee are accounted for as financial leases, otherwise as operating leases. As a lessee under operating lease Rentals payable under operating leases are charged to the consolidated income statement on the straight-line basis over the lease terms. Contingent rentals are charged to consolidated income statement when they are incurred. As a lessor under operating lease Rentals receivable under the operating leases are credited to the consolidated income statement on the straight-line basis over the lease terms. Contingent rentals are credited to consolidated income statement when they are incurred. (24) Hedge Accounting For the purpose of hedge accounting, hedges are classified as: (1) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk); or (2) cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognized firm commitment. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair value hedges The change in the fair value of a hedging derivative is recognized in the consolidated income statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognized in the consolidated income statement. For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through the consolidated income statement over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortized to the consolidated income statement. Amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in the consolidated income statement. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated income statement. The changes in the fair value of the hedging instrument are also recognized in the consolidated income statement.

Annual Report 2009 115 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (24) Hedge Accounting (continued) Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognized directly as other comprehensive income, while the ineffective portion is recognized immediately in the profit or loss. Amounts taken to other comprehensive income are transferred to the profit or loss when the hedged transaction affects the consolidated income statement, such as when hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or non-financial liability. If the forecast transaction or firm commitment is no longer expected to occur, the amounts previously recognized in equity are transferred to the consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised in other comprehensive income remain in there until the forecast transaction or firm commitment affects the consolidated income statement. (25) Changes in accounting policies and accounting estimates Changes in accounting policies For the long term equity investments measured at cost method, the investment income that the Group recognized was limited to proportionate distributions from accumulated profits after the acquisition. The extra cash dividends or profits gained by the Group were treated as a recovery of investment cost. After the adoption of the Interpretation No.3 to the CAS on 1 January 2009, the investment income that the Group recognizes is no longer based on distributions from accumulated profits before or after the date of acquisition. Since then, for the long term equity investments measured at cost method, the Group recognizes investment income according to the cash dividends or profits declared by the investee, except for cash dividends or profits declared but unpaid which were included in the consideration paid for acquiring the investment. The change of the accounting policy has no effect on the Group’s financial statements. (26) Impairment of assets The impairment of an asset other than inventories, deferred income tax, financial assets and long-term equity investments calculated with cost method, without quoted price in active market and the fair value cannot be measured reliably, is determined as follows: The Group assesses if there is any indication that an asset may be impaired at the balance date. If there is any indication that an asset may be impaired, the Group will assess its recoverable amount and perform impairment test. Goodwill recognized from business combination and intangible assets with indefinite useful lives are tested at least annually for impairment, irrespective of whether there is any indication that the asset may be impaired. Asset impairment test is conducted annually for intangible assets which are not yet available for use. An asset’s recoverable amount is the higher of the asset’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are mainly independent of those from other assets or groups of assets, in which case the recoverable amount is determined for cash-generating unit to which the asset belongs. An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the consolidated income statement in the period in which it arises. A provision for impairment loss of the asset is recognized accordingly. For the purpose of impairment testing of goodwill, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, which are expected to benefit from the synergies of the combination, and is within the business segment of the Group. The Group first measures the recoverable amount of the cash-generating unit on groups of cash-generating units without allocating goodwill, and if it is less than the carrying amount, there is an indication that impairment may exist. The recoverable amount of cash-generating unit or groups of cash-generating units with allocated goodwill is compared with its carrying amount. If the impairment loss is recognized, it is first deducted from the carrying amount of goodwill allocated to the asset group or groups of asset group, and then deducted from the carrying amount of the remaining assets of the asset group or groups of asset group executions goodwill on a pro rata basis. An impairment loss recognized for goodwill is not reversed in subsequent periods.

116 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (27) Employee benefits Employee benefits are all forms of considerations given and other related expenditure incurred in exchange for services rendered by employees. Employee benefits are recognized as a liability in the period which the associated services are rendered by employees. The amount of the employee benefits should be discounted to its present value if the amount is material and is due over one year after the balance sheet date. All employees of the Group are covered by the social insurances administrated by the local government, including pension, medical care and unemployment insurance as well as housing fund, and the contributions are recognized as cost of assets or charged to consolidated income statement. The welfares for internal retirements and supplementary pension are entirely undertaken by CNOOC; consequently, such cost is not recorded in the consolidated income statement of the Group (Note 6 (7)). The employees of acquired COSL Drilling Europe AS (hereafter “CDE” formerly known as Awilco Offshore ASA) enjoy pension and other post-retirement benefit, the relevant policies are as follows: The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. The defined benefit asset or liability comprises the present value of the defined benefit obligation less past service costs not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly, and the net amount is classified as non-current liabilities or non-current assets. The changes of net amount of defined benefit liabilities are recognized as employee costs in the consolidated income statement. The changes of estimation, net amount of defined benefit liabilities and actuarial gains or losses are recognized as income or expense over the expected average remaining service periods of the employees participating in the plan. The net amount of pension costs comprises present value of pension benefit of the period, interest expense arising from pension obligation, estimated return of pension fund and amortization of change in estimation and plan. (28) Significant accounting judgements and estimates Estimates with uncertainty The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities on the balance sheet date. However, uncertainty about those assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future. On the balance sheet date, the following uncertainties about those key assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future. Useful life of fixed assets The estimated useful life of fixed assets including properties is based on the actual useful life of fixed assets with similar characteristics and functions. If the useful life of these fixed assets is less than previously estimated, the Group will accelerated the related depreciation or disposed of idle or obsolete fixed assets. For drilling rigs, the estimates may change by reference to residual value, technology development, competition and provisions of relevant environment and laws. After taking into accounts there above factors, the Group will review future useful lives of components and residual value of rigs. Any changes in estimate of useful lives and/or residual value will have an impact to the depreciation of rigs. Impairment of non-current assets (except goodwill) other than financial assets At each balance sheet date, the Group assesses if there is any indication that non-current assets (except goodwill) other than financial assets may be impaired. An impairment test is conducted for intangible assets with uncertain useful lives annually and when there is an indication of impairment. For non-current assets other than financial assets, an impairment test is conducted when there is an indication showing that the carrying amount of which is unrecoverable. An impairment exists when the carrying amount of an asset or a group of assets exceeds its recoverable amount, i.e., the higher of its fair value less the disposal expenses and its present value of estimated future cash flow. The net amount of the fair value less the cost to sell will be determined by reference to the prices in the sales agreements or observable market prices of similar assets in arm’s length transactions less incremental costs directly attributable to such asset disposal. Estimating the present value of future cash flows requires the management to estimate the future cash flows of such asset or such group of assets and decide the appropriate discount rate to measure the present value. At 31 December 2009, provision for impairment of the Group’s construction in progress was RMB819,888,718 (2008: Nil). Please refer to Note 5 (17) for details.

Annual Report 2009 117 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

2. Significant accounting policies and accounting estimates (continued) (28) Significant accounting judgements and estimates (continued) Estimates with uncertainty (continued) Provision for doubtful debt and provision for inventory obsolescence The provision for doubtful debts is determined by the management based on available objective evidence, e.g. it is probable that a debtor will enter bankruptcy or significant financial difficulty of a debtor. According to the Group’s accounting policy of inventories, which are stated at the lower of cost and net realisable value, provision for inventory impairment is made for obsolete and slow moving items, when its cost is higher than its net realisable value. The Group will reassess whether specific inventory is obsolete and slow moving, or its net realisable is lower than its cost on the balance sheet date. The management will reassesses the provision for doubtful debts and inventory impairment on the balance sheet date. As at 31 December 2009, the Group recognized RMB43,428,342 (2008: RMB49,131,669) for doubtful debt provision of receivables and RMB1,070,665 (2008: RMB3,853,238) for inventory impairment provision. Please refer to Note 5 (17) for details. Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also the discount rate. Please refer to Note 5 (15) for details. Impairment of available-for-sale financial assets The Group classifies certain assets as available-for-sale and recognizes movements of their fair values in equity. When the fair value declines, management makes assumptions about the decline in value to determine whether there is an impairment that should be recognized in the profit or loss. At 31 December 2009, impairment losses of RMB15,003,044 (2008: RMB106,508,218) have been recognized for available-for-sale assets. Please refer to Note 5 (17) for details. Deferred tax assets Deferred tax assets are recognized for all unused income tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying value of deferred income tax assets relating to deductible losses at 31 December 2009 was approximately RMB16,404,539 (2008: RMB29,299,930). Please refer to Note 5 (30) for details. 3. Taxation The major taxes and tax rates applicable to the Group for the year are presented as follows: (1) Value added tax The Group’s taxable revenue is subject to value added tax (“VAT”) at tax rates of 8%, 10%, 14%, 17% and 25%, according to the operations in respective countries and regions. The VAT payable is determined by the output VAT net of deductible input VAT of the period. (2) Business tax Based on the state taxation regulations, the Group pays 3-5% based on the income from rendering of services. (3) Urban maintenance and construction tax The Group pays 7% of turnover tax as urban maintenance and construction tax. (4) Education surcharge The Group pays 3% of turnover tax as education surcharge. (5) Corporate income tax The New Corporate Income Tax (“CIT”) Law effective from 1 January 2008 introduces the income tax rate of 25%. On 30 October 2008, the Company was certified as an advanced technology enterprise by the Science and Technology Commission, the Ministry of Finance and the State Administration of Taxation (“SAT”), which is effective for three years. Further, the Company obtained approval from Tianjin Offshore Oil Tax Bureau (“TOOTB”) of the Tianjin Province Office of SAT in 2009. According to the Circular Jinguoshuihaishuijianmian [2009] No. 2, the corporate income tax rate was approved to be 15%, and therefore, the Company has applied the corporate income tax of 15% for January to December, 2009 (January to December, 2008: 15%). Income arising from the Group’s overseas subsidiaries is subject to corporate income tax in accordance with the tax provisions of those countries which the subsidiaries are operating or domiciled. Certain overseas subsidiaries of the Group with permanent establishment status in the PRC are subject to deemed income tax calculated at 2.5% (2008: 2.5%) of service income generated from drilling activities in the PRC. The Group’s business in Indonesia is subject to corporate income tax at 28% (2008: 10%-30%) based on the taxable profit.

118 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

3. Taxation (continued) (5) Corporate income tax (continued) The Group’s business in Australia is subject to corporate income tax at 30% (2008: 30%) based on the taxable profit. The Group’s business in Myanmar is subject to income tax at 3% (2008: 3%) based on the taxable profit. The Group’s business in Mexico is subject to the higher of income tax of 28% or business Flat Tax of 17% based on the taxable profit (2008: 28% and 16.5%, respectively). The Group’s business in Norway is subject to corporate income tax at 28% (2008: 28%) based on the taxable profit. The Group’s business in Vietnam is subject to income tax at 10% (2008: 10%) on income derived from the provision of services. The Group’s business in Libya is subject to income tax at 44% based on the deemed profit or at 18% based on gross income (2008: 44% and 18%, respectively). The Group’s drilling activities in Tunisia is subject to income tax at 35% based on the taxable profit (2008: N/A). The customers bear the income tax for the Group’s drilling activities in Saudi Arabia. Income from the Group’s drilling activities in Dubai is not subject to income tax. (6) Individual income tax The Company withholds individual income tax (“IIT”) on their behalf for the staff costs paid to the individuals. (7) Other tax Subject to the relevant tax policy of the PRC. 4. Consolidation scope of the consolidated financial statements (1) Particulars of subsidiaries Particulars of the principal subsidiaries of the Company are as follows:

Type of Place of Authorized Nature of Registered Business Organization Subsidiaries subsidiaries registration representative business capital scope code

Subsidiaries acquired through establishment or investment COSL America Inc. (“COSL America”) Limited company United States Not applicable Manufacture US$100,000 Manufacturing and Not applicable sales of logging equipment, spare parts and relevant materials China Oilfi eld Services (BVI) Limited Limited company British Virgin Not applicable Investment US$1 Investment holding Not applicable (“COSL (BVI)”) Islands holding COSL (Labuan) Company Limited Limited company Malaysia Not applicable Service US$1 Provision of drilling and Not applicable (“COSL (Labuan)”) oilfi eld technology service China Oilfi eld Services Southeast Asia Limited company British Virgin Not applicable Investment US$1 Investment holding Not applicable (BVI) Limited (“COSSA (BVI)”) Islands holding COSL Chemicals (Tianjin) Ltd. (“COSL Chemicals”) Limited company Tianjin, China Li Yong Service RMB20,000,000 a 103649048 COSL (Australia) Pty Ltd (“COSL (Australia)”) Limited company Australia Not applicable Service AUD(A$) 10,000 Provision of drilling Not applicable services in Australia COSL Hong Kong International Limited Limited company Hong Kong, Not applicable Investment HK$ 2,227,770,001 Investment holding Not applicable China holding COSL Drilling Pan-Pacifi c Ltd.(“CDPL”) Limited company Singapore Not applicable Service US$1 Provision of rig Not applicable management service COSL Drilling Pan-Pacifi c (Labuan) Ltd. (“CDPLL”) Limited company Malaysia Not applicable Service US$1 Provision of rig Not applicable management service COSL Norwegian AS (“COSL Norwegian”) Limited company Norway Not applicable Investment NOK1,541,328,656 Investment holding Not applicable holding Subsidiaries acquired through business combination not under common control COSL Drilling Europe AS (“CDE”) Limited company Norway Not applicable Service NOK1,494,415,487 b Not applicable

Annual Report 2009 119 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

4. Consolidation scope of the consolidated financial statements (continued) (1) Particulars of subsidiaries (continued) a: Slurry lubricant and cement additive production; batch sale and retailing of chemical products (excluding dangerous goods and that for drug); repairing of chemical equipment; import and export (excluding the good and techniques forbidden by the state); storage (excluding coal, dangerous and contaminating goods). Regulation on franchise and monopolize selling of the State will be observed, if any. b: Investment of jack-up rigs, semi-submersible rigs and accommodation platforms.

Actual amount of Balance of other contribution at the projects actually end of the year constituting net Shareholding ratio Voting Included in Minority Subsidiaries RMB equivalent investment Direct Indirect right ratio consolidation or not interest Remark

Subsidiaries acquired through establishment or investment COSL America Inc. (“COSL America”) 2,712,100 – 100% – 100% Yes – China Oilfi eld Services(BVI) Limited 8 – 100% – 100% Yes – (“COSL (BVI) ”) COSL (Labuan) Company Limited 8 – – 100% 100% Yes – (“COSL (Labuan)”) China Oilfi eld Services Southeast Asia 24,830,708 – – 100% 100% Yes – (BVI) Limited (“COSSA (BVI)”) COSL Chemicals (Tianjin) Ltd. 10,709,948 – 100% – 100% Yes – (“COSL Chemicals”) COSL (Australia) Pty Ltd (“COSL (Australia)”) 59,262 – – 100% 100% Yes – COSL Hong Kong International Limited 6,827,665,500 – 100% – 100% Yes – COSL Drilling Pan-Pacifi c Ltd.(“CDPL”) 8 – 100% 100% Yes – COSL Drilling Pan-Pacifi c (Labuan) Ltd. (“CDPLL”) 8 – 100% 100% Yes – COSL Norwegian AS(“COSL Norwegian”) 6,766,351,630 – – 100% 100% Yes – Subsidiaries acquired through business combination not under common control COSL Drilling Europe AS (“CDE”) 16,094,229,578 – – 100% 100% Yes – (note 1)

The above table lists out the principal subsidiaries and jointly-controlled entities which, in the opinion of the directors of the Company, principally affecting the results or constituted net assets of the Group. To give details of other subsidiaries would result in particulars of excessive length. note 1: Th e Company acquired CDE dated 29 September 2008. Please refer to Note 5(51) for details.

120 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

4. Consolidation scope of the consolidated financial statements (continued) (2) Subsidiaries newly included in the consolidation scope this year The subsidiaries newly included in the consolidation scope in 2009 are as follows:

Net assets at Net profit of the end of 2009 2009

CDPL 681,953 682,253 CDPLL 26,024,018 26,035,452 Haiyang Petroservices Ltd. 847,387 12,119 COSL Drilling Force Pte. Ltd. (note) US$2 – COSL Drilling Seeker Pte. Ltd. (note) US$2 – COSL Drilling Superior Pte. Ltd. (note) US$2 – COSL Drilling Boss Pte. Ltd. (note) US$2 – COSL Drilling Strike Pte. Ltd. (note) US$2 – COSL Drilling Power Pte. Ltd. (note) US$2 – COSL Drilling Craft Pte. Ltd. (note) US$2 – COSL Drilling Conﬁ dence Pte. Ltd. (note) US$2 –

note: Th e net assets amount of the above eight companies is the total registered capital amount. Apart from the subsidiaries newly established this year, the consolidation scope of the consolidated financial statements is consistent with that of previous year. (3) Exchange rate adopted for major items of the statements of foreign entities of the Group All amounts in the statements of foreign entities of the Group are converted from US$ into RMB. For this year, the exchange rate as of the year-end is 6.8282 (31 December 2008: 6.8346) and the average exchange rate is 6.8312 (2008: 6.9451).

Annual Report 2009 121 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (1) Cash on hand and at bank

31 December 2009 31 December 2008 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent

Cash on hand – RMB 133,984 1.0000 133,984 231,855 1.0000 231,855 – US$ 197,103 6.8282 1,345,859 288,390 6.8346 1,971,029 – Libya Dinar 1,912 5.5195 10,553 949 5.4742 5,197 – Philippine Peso 956,738 0.1467 140,377 211,772 0.1440 30,495 – A$ 392 6.1242 2,401 448 4.7350 2,120 – UAE Dirham 38 1.8600 71 38 1.8618 70 – Myanmar Kyat 4,584 1.0382 4,759 3,351,575 0.0059 19,926 – Indonesia Rupiah 156,569,682 0.0007 113,733 76,447,004 0.0006 47,642 – NOK 1,885 1.1820 2,228 5,531 0.9763 5,400 – SGD 36 4.8605 177 – 4.7430 –

1,754,142 2,313,734

Cash at bank – RMB 1,862,632,538 1.0000 1,862,632,538 2,656,122,215 1.0000 2,656,122,215 – US$ 298,256,309 6.8282 2,036,553,749 241,718,847 6.8346 1,652,051,633 – HK$ 956,756 0.8805 842,405 213,316 0.8819 188,124 – Indonesia Rupiah 3,527,015,281 0.0007 2,562,039 2,062,036,499 0.0006 1,279,457 – Euro – – – 398,306 9.6590 3,847,242 – A$ 604,244 6.1242 3,700,516 575,105 4.7350 2,723,128 – Philippine Peso 262,472,463 0.1467 38,509,674 90,313,832 0.1440 13,003,852 – Malaysia Ringit 171,359 1.9880 340,661 62,778 1.9665 123,453 – Mexican Peso 71,368,168 0.5229 37,317,354 16,835,439 0.5048 8,499,109 – Libya Dinar – – – 9,494 5.4742 51,973 – NOK 19,298,535 1.1820 22,811,338 214,664,616 0.9763 209,576,958 – SGD 1,421,567 4.8605 6,909,529 177,491 4.7530 843,616 – UAE Dirham 88,002 1.8600 163,688 33,064 1.8618 61,558 – Nigerian Naira 1,068,371 0.0447 47,756 – 0.0454 –

4,012,391,247 4,548,372,318

Other monetary funds – RMB 457,522 1.0000 457,522 322,254 1.0000 322,254 – US$ 912,681 6.8282 6,231,968 1,526,823 6.8346 10,435,227 – NOK 170,891,489 1.1820 201,997,899 17,454,401 0.9763 17,040,731

208,687,389 27,798,212

Total 4,222,832,778 4,578,484,264

As at 31 December 2009, the restricted cash at bank of the Group amounted to RMB208,229,867 (31 December 2008: RMB14,650,212).

As at 31 December 2009, cash at bank of the Group placed in overseas banks amounted to RMB1,829,017,640 (31 December 2008: RMB1,531,306,630).

Interest income from saving deposits in banks was accrued based on the saving deposit interest rate from banks. Deposit period of short term demand deposits varies from seven days to six months, depending on the Group’s cash demand, and interest was earned at the respective term deposit rates.

122 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (2) Notes receivable

31 December 31 December 2009 2008

Trade acceptances 427,107,943 338,269,985 Banker’s acceptances 2,549,959 16,600,000

429,657,902 354,869,985

Balance of notes receivable as at 31 December 2009 did not include notes from shareholders holding 5% or more voting shares of the Company (31 December 2008: nil). Th e notes receivable balance included an amount of RMB427,107,943 due from a related party, CNOOC Limited (31 December 2008: RMB338,269,985). Please refer to Note 6(5) for details.

(3) Accounts receivable

31 December 31 December 2009 2008

Accounts receivable 3,837,737,985 2,788,333,300 Less: provision for impairment of accounts receivable 92,190,621 53,308,614

3,745,547,364 2,735,024,686

Th e general credit terms of the Group range from 30 to 45 days upon the issuance of the invoice. Th e Group’s accounts receivable relates to a large number of diversiﬁ ed customers. Accounts receivable from CNOOC Group and CNOOC Limited Group account for 59% of total accounts receivable. Except that there is no signiﬁ cant concentration of credit risk of the Group’s accounts receivable. All accounts receivable are non-interest-bearing. Th e ageing analysis of accounts receivable is as follows:

31 December 2009 31 December 2008 Provision for Provision for impairment of impairment of accounts Provision accounts Provision Amount Ratio receivable ratio Amount Ratio receivable ratio

Within 1 year 3,815,901,664 100% 80,022,440 2% 2,777,863,894 100% 48,723,771 2% 1-2 years 13,699,630 – 4,109,889 30% 7,750,638 – 2,143,850 28% 2-3 years 5,697,181 – 5,618,782 99% 277,775 – – – Over 3 years 2,439,510 – 2,439,510 100% 2,440,993 – 2,440,993 100%

Total 3,837,737,985 100% 92,190,621 2,788,333,300 100% 53,308,614

Annual Report 2009 123 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (3) Accounts receivable (continued)

31 December 2009 31 December 2008 Provision for Provision for impairment of impairment of accounts Provision accounts Provision Amount Ratio receivable ratio Amount Ratio receivable ratio

Individually signiﬁ cant items 3,373,779,393 88% 80,022,440 2% 2,387,832,777 86% – – Other insigniﬁ cant items 463,958,592 12% 12,168,181 3% 400,500,523 14% 53,308,614 13%

Total 3,837,737,985 100% 92,190,621 2,788,333,300 100% 53,308,614

Analysis of provision for impairment of accounts receivable is as follow:

31 December 31 December 2009 2008

Balance at the beginning of the year 53,308,614 4,797,726 Provision during the year 88,211,220 49,215,720 Written-back during the year (49,326,498) (482,346) Exchange realignment (2,715) (222,486)

Balance at the end of the year 92,190,621 53,308,614

Explanation for types of accounts receivable: As at 31 December 2009, provision for impairment of accounts receivable for individual signiﬁ cant items is as follows:

Provision for Carrying impairment of amount accounts receivable Provision ratio Reason

Atlantis Deepwater Orient Ltd. 160,044,908 80,022,440 50% Atlantis Deepwater Orient Ltd (“Atlantis Deepwater”) recorded losses and such that the Group does not expect that the accounts can be recovered in full.

As at 31 December 2008, provision for impairment of accounts receivable for single items of signiﬁ cance is as follows:

Provision for Carrying impairment of amount accounts receivable Provision ratio Reason

Texas American Resources-Asian Inc. (“Texas Asian”) 48,723,772 48,723,772 100% Under the ﬁ nancial crisis, Texas Asian went bankrupt and was unable to repay the accounts (note 1)

note1: By making eﬀ orts, the Company recovered the accounts fully from the parent company of Texas Asian in 2009.

124 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (3) Accounts receivable (continued) As at 31 December 2009, the 5 largest accounts receivable are listed as follows:

Relationship with Percentage of total the Group Amount Ageing accounts receivable

CNOOC Limited Related party 1,874,789,040 Within 1 year 50% ConocoPhillips China Inc. (COPC) Non-related party 346,569,742 Within 1 year 9% CNOOC Related party 257,469,184 Within 1 year 7% Woodside Energy Ltd Non-related party 213,121,475 Within 1 year 6% Arab Drilling and Workover Company Non-related party 153,617,620 Within 1 year 4%

2,845,567,061 76%

As at 31 December 2008, the 5 largest accounts receivable are listed as follows:

Relationship with Percentage of total the Group Amount Ageing accounts receivable

CNOOC Limited Related party 1,236,112,535 Within 1 year 44% ConocoPhillips China Inc. (COPC) Non-related party 256,879,875 Within 1 year 10% CNOOC Related party 120,526,395 Within 1 year 4% Peak Group Asia Paciﬁ c Pty Ltd Non-related party 113,588,165 Within 1 year 4% ConocoPhillips Skandinavia AS Non-related party 109,224,132 Within 1 year 4%

1,836,331,102 66%

The accounts receivable balance as at 31 December 2009 included an amount of RMB257,469,184 due from CNOOC, a shareholder holding 53.63% voting rights of the Company (31 December 2008: RMB120,526,395). Th e accounts receivable due from other related parties amounted to RMB2,096,073,209 (31 December 2008: RMB1,316,571,319). Please refer to Note 6(5) for details. As at each year-end of the ﬁ nancial statements, except for the aforementioned Atlantis Deepwater, no accounts receivable due from shareholders and other related parties is overdue. Th erefore, no provision for impairment was made for such accounts, other than 50% provision made for impairment of account receivable due from Atlantis Deepwater. Th e Group’s accounts receivable are mainly denominated in RMB and US$. As at 31 December 2009, the balance denominated in US$ was US$199,594,759 (equivalent to RMB1,362,872,935) (31 December 2008: the balance denominated in US$ was US$187,991,502, equivalent to RMB1,284,846,720). Th e Group had no impairment provision of accounts receivable written-oﬀ during the year.

(4) Prepayments Th e ageing analysis of prepayments is as follows:

31 December 2009 31 December 2008 Amount Ratio Amount Ratio

Within 1 year 354,732,697 67% 1,281,548,540 100% 1-2 years 173,500,558 33% – –

Total 528,233,255 100% 1,281,548,540 100%

Annual Report 2009 125 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (4) Prepayments (continued) As at 31 December 2009, the Group’s prepayment balance did not include amount due from a shareholder holding 5% or more voting rights of the Company (31 December 2008: nil). As at 31 December 2009, the 5 largest prepayments are as follows:

Relationship with Prepayment 2009 the Group Amount time Reasons for outstanding

Oﬀ shore Oil Engineering Co., Ltd. Related party 298,097,500 2009 Prepayment for engineering construction is still unsettled ROLLS-ROYCE MARINE Non-related party 156,649,546 2008 Prepayment for 20% of the ships (SHANGHAI) with three functions in deep water is still unsettled WARTSILA CHINA LTD Non-related party 16,851,012 2008 Prepayment for the ships with three functions in deep water is still unsettled Parisco-Hull & Machinery Non-related party 11,236,663 2009 Prepayment for insurance premium is still unsettled Tianjin Baosteel Northern Trade Non-related party 4,872,089 2009 Prepayment for engineering Co., Ltd. expenses is still unsettled

487,706,810

Relationship with Prepayment 2008 the Group Amount time Reasons for outstanding

China Merchants Heavy Industry Non-related party 480,544,812 2008 Prepayment for engineering (Shenzhen) Co., Ltd. construction is still being unsettled Oﬀ shore Oil Engineering Co., Ltd. Related party 259,724,275 2008 Prepayment for engineering construction is still being unsettled Dalian Shipbuilding Industry Non-related party 228,919,400 2008 Prepayment for engineering Co., Ltd. construction is still being unsettled ROLLS-ROYCE MARINE Non-related party 156,649,546 2008 Prepayment for 20% of the ships (SHANGHAI) with three functions in deep water is still unsettled Shenzhen Pufeite Electromechanical Non-related party 33,396,000 2008 Prepayment for materials is Technology Ltd. still unsettled

1,159,234,033

Th e balance of prepayments included an amount of RMB298,097,500 (2008: RMB284,324,275) prepaid to related parties. Please refer to Note 6(5) for details.

126 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (5) Dividend receivable

Balance at the Increase Decrease Balance at Reasons for beginning of during during Exchange the end of outstanding Impaired 2009 the year the year the year realignment the year balances or not

Within 1 year 16,391,075 226,273,351 (218,854,213) (55,798) 23,754,415 Some dividends No are not paid aft er the declaration for grant

Balance at the Increase Decrease Balance at Reasons for beginning of during during Exchange the end of outstanding Impaired 2008 the year the year the year realignment the year balances or not

Within 1 year 21,287,114 129,523,817 (126,838,293) (7,581,563) 16,391,075 Some dividends No are not paid aft er the declaration for grant

Dividend receivable as at 31 December 2009 and 31 December 2008 were all dividend receivable due from jointly-controlled entities. (6) Other receivables

31 December 31 December 2009 2008

Other receivables 396,454,853 309,257,212 Less: Provision for impairment of other receivables 7,331,282 2,787,662

389,123,571 306,469,550

Ageing analysis of other receivables of the Group is as follows:

31 December 2009 31 December 2008 Provision for Provision for impairment of impairment of other Provision other Provision Amount Ratio receivables ratio Amount Ratio receivables ratio

Within 1 year 377,096,228 95% – – 303,995,616 98% – – 1-2 years 16,479,579 4% 4,855,710 29% 2,532,452 1% 427,345 17% 2-3 years 1,008,685 – 605,211 60% 922,069 – 553,242 60% Over 3 years 1,870,361 1% 1,870,361 100% 1,807,075 1% 1,807,075 100%

396,454,853 100% 7,331,282 309,257,212 100% 2,787,662

Annual Report 2009 127 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (6) Other receivables (continued)

31 December 2009 31 December 2008 Provision for Provision for impairment of impairment of other Provision other Provision Amount Ratio receivables ratio Amount Ratio receivables ratio

Individually signiﬁ cant items 230,217,712 58% – – 153,534,943 50% – – Other insigniﬁ cant items 166,237,141 42% 7,331,282 4% 155,722,269 50% 2,787,662 2%

Total 396,454,853 100% 7,331,282 309,257,212 100% 2,787,662

Analysis of provision for impairment of other receivables is as follows:

31 December 31 December 2009 2008

Balance at the beginning of the year 2,787,662 2,389,367 Provision during the year 8,269,455 728,141 Written-back during the year (3,725,835) (329,846)

Balance at the end of the year 7,331,282 2,787,662

As at 31 December 2009, the 5 largest other receivables are as follows:

Relationship Percentage of total with the Group Amount other receivables Account nature

PD Joint-controlled entity 147,177,452 37% Funds transfer Atlantis Deepwater Joint-controlled entity 30,115,828 8% Funds borrowed Maersk Drilling Pty Ltd Non-related party 13,317,246 3% Operational fees NOX fee Non-related party 9,798,467 2% Surcharges of Norway port Xingang Custom of Tianjin of the Peoples’ Republic of China Non-related party 9,311,897 2% Tariﬀ deposits

209,720,890 52%

As at 31 December 2008, the 5 largest other receivables are as follows:

Relationship Percentage of total with the Group Amount other receivables Account nature

PD Joint-controlled entity 71,919,890 23% Funds transfer Xingang Custom of Tianjin of the Peoples’ Republic of China Non-related party 44,871,272 14% Tariﬀ deposits Atlantis Deepwater Joint-controlled entity 26,694,570 9% Funds borrowed Oslo tax authorities Non-related party 10,994,847 4% Refund of value-added tax receivable Maersk Contractors Australia Non-related party 9,940,220 3% Operational fees Pty Ltd

164,420,799 53%

128 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (6) Other receivables (continued) Th e other receivable balance as at 31 December 2009 included an amount of RMB1,983,532 due from CNOOC, a shareholder holding 53.63% voting shares of the Company (31 December 2008: RMB2,299,741). Th e other receivables due from other related parties amounted to RMB187,908,663 (31 December 2008: RMB105,018,111) as at 31 December 2009. Please refer to Note 6(5) for details. As at each year-end of the ﬁ nancial statements, no other receivables due from shareholders and other related parties is overdue. Th erefore, no provision for impairment was made for such accounts. (7) Inventories

31 December 31 December 2009 2008

Materials and spare parts for production 837,313,028 796,564,470 Less: Provision for impairment of inventories 16,764,482 15,693,817

820,548,546 780,870,653

Th e analysis for provision for impairment of inventories is as follows:

31 December 31 December 2009 2008

Balance at the beginning of the year 15,693,817 11,840,579 Provision during the year 1,070,665 3,853,238 Written-back during the year – –

Balance at the end of the year 16,764,482 15,693,817

(8) Held-to-maturity investment

31 December 31 December 2009 2008

Held-to-maturity investment 39,081,025 78,235,318 Current portion of non-current assets 39,081,032 39,117,655

Total 78,162,057 117,352,973

Th is investment represents CDE’s term deposit with an annual interest rate of 5.386% placed in the account of the agent bank of DnBNOR, as a pledge for a loan obtained from Eksportﬁ nans, a Norway export credit institution. Please refer to Note 5 (26 and 28) for details.

Annual Report 2009 129 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (9) Available-for-sale ﬁ nancial assets

31 December 31 December 2009 2008

Available-for-sale ﬁ nancial assets (note 1) 140,792,296 140,825,753 Less: Provision for impairment of ﬁ nancial assets 121,511,262 106,508,218

19,281,034 34,317,535

note 1:

31 December 31 December 2009 2008

Equity percentage attributable to the Group 18.5% 18.5%

Share investment, cost 140,366,447 140,366,447 Exchange realignment 425,849 459,306 Less: Provision for impairment of ﬁ nancial assets 121,511,262 106,508,218

Net carrying value 19,281,034 34,317,535

Th e Group’s available-for-sale ﬁ nancial assets represents an investment in Petrojack ASA made by CDE (CDE was acquired by the Company on 28 September 2008). Petrojack ASA is listed in Norway Security Exchange and the fair value is calculated according to the listed price at the period/year end times the shares held by CDE. Th e change in the fair value of the investment is recorded directly in equity. Th e fair value of this investment as at the Group’s acquisition was RMB140,366,447. As at 31 December 2009, the market value of CDE’s investment in Petrojack ASA has declined signiﬁ cantly. Th e Group deemed it as an impairment and an impairment provision amounting to RMB121,511,262 was made. Please refer to Note 5(17) for details.

130 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (10) Investment in jointly-controlled entities

Authorized 2009 and 2008 Type of entity Place of registration representative Nature of business Registered capital

China France Bohai Geoservices Limited company Tianjin, China Li Yong b US$6,650,000 Co., Ltd. (“China France Bohai”) 30 November 1983

China Nanhai-Magcobar Mud Limited company Shenzhen, China Corporation Ltd. (“Magcobar”) 25 October 1984 Zhang Xingyun a RMB4,640,000

CNOOC-OTIS Well Completion Limited company Tianjin, China Zhao Shunqiang c US$2,000,000 Services Ltd. (“CNOOC-OTIS”) 14 April 1993

China Petroleum Logging-Atlas Limited company Shenzhen, China Yu Feng d US$2,000,000 Cooperation Service Company 10 May 1984 (“Logging-Atlas”)

China Oﬀ shore Fugro Geo Solutions Limited company Shenzhen, China Yu Zhanhai e US$1,720,790 (Shenzhen) Company Ltd.(“Fugro”) 24 August 1983

PT Tritunggal Sinergi Company Ltd. Limited company Indonesia Not applicable Provision of oilﬁ eld US$700,000 (“PTTS”) 30 December 2004 maintenance services

Eastern Marine Services Ltd. Limited company Hong Kong, China Not applicable Provision of marine HK$1,000,000 (“Eastern Marine”) 10 March 2006 transportation services

COSL-Expro Testing Services Limited company Tianjin, China Zhao Shunqiang f US$5,000,000 (Tianjin) Company Ltd. 28 February 2007 (“COSL-Expro”)

Atlantis Deepwater Orient Ltd. Limited company Hong Kong, China Not applicable Provision of artiﬁ cial HK$1,000 (“Atlantis Deepwater”) 28 August 2006 buoyant seabed unit

Premium Drilling AS (“PD”) (note 1) Limited company Norway Not applicable Operation of jack-up NOK100,000 June 2005 rigs

Annual Report 2009 131 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated fi nancial statements (continued) (10) Investment in jointly-controlled entities (continued) a: Provision of drilling slurry services inside or outside the PRC; provision of slurry treatment agent products to the oil companies working in the cooperation region of Chinese sea as well as provision of slurry treatment, equipment, spare parts etc, and drilling liquid for drilling on land. b: Provision of slurry logging service, steel wire working services, production testing and measurement services as well as the services related to the ones listed above to customers working onshore and off shore territory of the PRC, including sampling and testing both in ground and under well; data collection, transmission and interpretation; equipment calibration and maintenance; use of various services and tools of Slick Line. c: Provision of professional technical services for industries of oil and gas, geo-thermal development and mining industry; provision of rental, maintenance of the tools, equipments, chemicals and materials for oil and gas, geo-thermal development and mining industries (in case of dangerous chemical involved, the approval certifi cate shall govern). d: Provision of off shore and onshore joint well exploration services, including well exploration, boring and well completion. e: Undertaking of off shore oil exploration and development in the sea areas of China (including exploration, well fi eld investigation, pipeline and cable laying, engineering geology investigation, maintenance of sea bed facility); Provision of ROV testing, orientation and surveying services. f: Provision of oil exploration, drilling system testing services in the territory of the PRC, and other services including ground and DST data obtaining and related services.

note 1: PD which was established by COSL Drilling Europe AS and Sinvest AS (formerly known as Sinvest ASA) in June 2005, includes Premium Drilling AS, Premium Drilling Inc and Premium Drilling (Cayman) Ltd., providing service of operation of jack-up drilling rigs. Premium Drilling was acquired as a jointly-controlled entity through the acquisition of CDE as further described in Note 5(51). In May 2009, the Group and the other investor made the common decision to terminate the management agreement of Premium Drilling (Cayman). During the ﬁ nancial statement reporting period, the Company’s initial investment amount on the aforementioned other jointly- controlled entities had not changed, and the shares held and voting right ratios remained the same.

Total assets Total liabilities Total net assets Revenue Net proﬁ t/(loss) Balance at the Balance at the Amount Amount Amount 2009 end of the year end of the year for the year for the year for the year

Jointly-controlled entities Magcobar 301,749,370 84,999,567 216,749,803 483,056,922 95,854,863 China France Bohai 236,855,658 94,219,724 142,635,934 412,195,191 141,314,117 CNOOC-Otis 77,653,892 20,955,600 56,698,292 61,785,938 9,961,252 Logging-Atlas 71,451,145 28,933,177 42,517,968 89,273,100 11,258,571 Fugro 176,917,950 43,275,468 133,642,482 189,570,851 68,793,439 PTTS 2,014,555 26,317 1,988,238 – (20,114) Eastern Marine 369,323,129 71,486,960 297,836,169 170,116,868 (10,554,061) COSL-Expro 207,492,105 85,796,097 121,696,008 293,171,026 71,574,271 Atlantis Deepwater 60,310,617 234,812,317 (174,501,700) – (197,993,495) PD 242,185,520 430,667,534 (188,482,014) 68,347,551 (46,027,312)

Th ere is no signiﬁ cant diﬀ erence in the key accounting policies and accounting estimates applied by the jointly-controlled entities and the Company.

132 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (10) Investment in jointly-controlled entities (continued)

Total assets Total liabilities Total net assets Revenue Net proﬁ t/(loss) Balance at the Balance at the Amount Amount Amount 2008 end of the year end of the year for the year for the year for the year

Magcobar 297,314,561 80,575,630 216,738,931 463,558,247 102,416,887 China France Bohai 215,682,168 44,534,846 171,147,322 358,809,753 120,741,981 CNOOC-Otis 85,726,389 18,957,399 66,768,990 73,710,092 14,277,552 Logging-Atlas 86,882,718 45,340,392 41,542,326 130,742,796 18,820,276 Fugro 126,441,987 42,131,821 84,310,166 153,141,786 46,729,570 PTTS 2,608,043 13,124 2,594,919 – (271,778) Eastern Marine 414,713,105 26,347,568 388,365,537 211,170,703 112,616,137 COSL-Expro 187,197,450 60,075,714 127,121,736 280,058,102 85,573,921 Atlantis Deepwater 90,813,658 61,879,964 28,933,694 – (59,127,774) PD 589,326,291 734,136,613 (144,810,322) 187,946,729 (41,308,944)

(11) Long-term equity investments

31 December 31 December 2009 2008

Cost method 99,884 – Equity method 531,635,201 589,449,106

531,735,085 589,449,106

Initial investment Balance at the Increase Decrease Balance at amount beginning of during during the end of the year the year the year the year

Cost method: Atlantis Deepwater Technology holding AS 99,884 – 99,884 – 99,884

Th ere is no impairment for the long-term equity investments as at 31 December 2009. Th erefore, no provision for impairment of long-term equity investment is required.

Annual Report 2009 133 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (11) Long-term equity investments (continued)

Reclassiﬁ cation of shared excess losses to other current Balance at Increase liabilities/ Balance at Provision Cash dividend Initial the beginning (decrease) non-current the end of Shareholding ratio Voting right for during the 2009 investment of the year during the year liabilities the year (%) ratio (%) impairment year Direct Indirect

Equity method: Jointly-controlled entities China France Bohai 56,336,656 85,573,661 (14,255,694) – 71,317,967 50% – 50% – (63,536,010) Magcobar (note 3) 25,170,585 130,043,359 6,524 – 130,049,883 60% – 50% – (57,392,160) CNOOC-OTIS 27,520,607 33,384,495 (5,035,349) – 28,349,146 50% – 50% – (10,200,000) Logging-Atlas 10,167,012 20,771,163 487,821 – 21,258,984 50% – 50% – (5,124,300) Fugro 10,134,627 42,155,083 24,666,158 – 66,821,241 50% – 50% – (9,713,937) PTTS (note 3) 3,186,453 1,427,206 (333,675) – 1,093,531 – 55% 50% – – Eastern Marine (note 3) 163,113,033 198,066,424 (46,169,979) – 151,896,445 – 51% 50% – (41,806,944) COSL-Expro 19,352,250 63,560,868 (2,712,864) – 60,848,004 50% – 50% – (38,500,000) Atlantis Deepwater (note 2) 46,771,639 14,466,847 (50,865,622) 36,398,775 – – 50% 50% – – PD (note 1) 24,644,100 – (21,835,846) 21,835,846 – – 50% 50% – –

Subtotal 386,396,962 589,449,106 (116,048,526) 58,234,621 531,635,201 – (226,273,351)

note 1: Th e investment was held by CDE, and the Group shared the excess losses in proportion of the equity investment. During the accounting period, shareholders of PD terminated the management agreement of PD. Th e jointly-controlled entity was going to be liquidated and the losses would be reclassifi ed into other current liabilities (31 December 2008: other non-current liabilities). note 2: Th e Group shared the excess losses according to the proportion of the equity investment and reclassifi ed the losses as other non-current liabilities at the end of the reporting period. Please refer to Note 5 (31) for details. note 3: Although the Company’s shareholding ratio in Magcobar, PTTS, Eastern Marine exceeds 50%, according to the Articles of Associations of these three companies, the Company does not have control over their operational and fi nancial decisions. Th erefore, these fi nancial statements were not incorporated into the Group’s consolidated fi nancial statements and were only recorded based on the equity method in accordance with the Accounting Standards for Business Enterprises No.33 – Consolidated Financial Statements. No restriction was imposed on the transfer of funds to the Group from the countries/areas where the above jointly-controlled entities were located.

134 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (11) Long-term equity investments (continued)

Reclassiﬁ cation of shared excess losses Balance at Increase to other Balance at Provision Cash dividend Initial the beginning (decrease) non-current the end of Shareholding ratio Voting right for during the 2008 investment of the year during the year liabilities the year (%) ratio (%) impairment year Direct Indirect

Jointly-controlled entities China France Bohai 56,336,656 54,368,365 31,205,296 – 85,573,661 50% – 50% – (44,305,380) Magcobar (note 2) 25,170,585 136,829,535 (6,786,176) – 130,043,359 60% – 50% – (57,430,160) CNOOC-OTIS 27,520,607 27,208,916 6,175,579 – 33,384,495 50% – 50% – (1,366,900) Logging-Atlas 10,167,012 17,632,506 3,138,657 – 20,771,163 50% – 50% – (5,144,325) Fugro 10,134,627 26,952,665 15,202,418 – 42,155,083 50% – 50% – (8,294,052) PTTS (note 2) 3,186,453 1,696,684 (269,478) – 1,427,206 – 55% 50% – – Eastern Marine (note 2) 163,113,033 150,605,567 47,460,857 – 198,066,424 – 51% 50% – – COSL-Expro 19,352,250 33,773,907 29,786,961 – 63,560,868 50% – 50% – (13,000,000) Atlantis Deepwater 46,771,639 36,103,040 (21,636,193) – 14,466,847 – 50% 50% – – PD (note 1) 24,644,100 – (24,556,704) 24,556,704 – – 50% 50% – –

Subtotal 386,396,962 485,171,185 79,721,217 24,556,704 589,449,106 – (129,523,817)

note 1: Th e investment was held by CDE and the Group shared the excess losses according to the proportion of the equity investment ratio. note 2: Although the Company’s shareholding ratio in Magcobar, PTTS, Eastern Marine exceeds 50%, according to the Articles of Associations of these three companies, the Company does not have control over their operational and fi nancial decisions. Th erefore, these fi nancial statements were not incorporated into the Group’s consolidated fi nancial statements and were only recorded based on equity method in accordance with the Accounting Standards for Business Enterprises No.33 – Consolidated Financial Statements. No restriction was imposed on the transfer of funds to the Group from the countries/areas where the above jointly-controlled entities were located.

Annual Report 2009 135 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (12) Fixed assets

Balance at Increase Decrease Balance at the beginning during during the end 2009 of the year the year the year of the year Restated (note 1)

Cost Land and buildings 39,088,867 32,017,767 667,653 70,438,981 Tankers and vessels 6,827,843,462 1,978,119,131 224,494,555 8,581,468,038 Drilling rigs 23,001,543,087 5,302,557,676 1,058,225,793 27,245,874,970 Machinery and equipment 5,617,358,739 1,154,241,700 127,715,672 6,643,884,767 Other vehicles 70,760,528 10,881,763 3,781,793 77,860,498

Total 35,556,594,683 8,477,818,037 1,414,885,466 42,619,527,254

Accumulated depreciation Land and buildings 6,455,813 2,088,719 320,551 8,223,981 Tankers and vessels 3,647,480,223 316,125,933 207,186,789 3,756,419,367 Drilling rigs 5,773,759,849 1,327,819,475 898,358,352 6,203,220,972 Machinery and equipment 1,951,462,077 678,061,516 116,786,945 2,512,736,648 Other vehicles 40,229,087 7,513,685 1,127,635 46,615,137

Total 11,419,387,049 2,331,609,328 1,223,780,272 12,527,216,105

Net carrying amount Land and buildings 32,633,054 29,929,048 347,102 62,215,000 Tankers and vessels 3,180,363,239 1,661,993,198 17,307,766 4,825,048,671 Drilling rigs 17,227,783,238 3,974,738,201 159,867,441 21,042,653,998 Machinery and equipment 3,665,896,662 476,180,184 10,928,727 4,131,148,119 Other vehicles 30,531,441 3,368,078 2,654,158 31,245,361

Total 24,137,207,634 6,146,208,709 191,105,194 30,092,311,149

Impairment provision Land and buildings – – – – Tankers and vessels – – – – Drilling rigs – – – – Machinery and equipment – – – – Other vehicles – – – –

Total – – – –

Carrying amount Land and buildings 32,633,054 29,929,048 347,102 62,215,000 Tankers and vessels 3,180,363,239 1,661,993,198 17,307,766 4,825,048,671 Drilling rigs 17,227,783,238 3,974,738,201 159,867,441 21,042,653,998 Machinery and equipment 3,665,896,662 476,180,184 10,928,727 4,131,148,119 Other vehicles 30,531,441 3,368,078 2,654,158 31,245,361

Total 24,137,207,634 6,146,208,709 191,105,194 30,092,311,149

136 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (12) Fixed assets (continued)

Balance at Increase Decrease Balance at the beginning during during the end 2008 of the year the year the year of the year (Restated) (Restated) (note 1) (note 1)

Cost Land and buildings 38,882,067 206,800 – 39,088,867 Tankers and vessels 6,022,002,365 977,566,638 171,725,541 6,827,843,462 Drilling rigs 6,695,650,088 16,277,498,399 (28,394,600) 23,001,543,087 Machinery and equipment 4,076,881,422 1,615,599,357 75,122,040 5,617,358,739 Other vehicles 62,184,587 11,218,354 2,642,413 70,760,528

Total 16,895,600,529 18,882,089,548 221,095,394 35,556,594,683

Accumulated depreciation Land and buildings 3,793,986 2,661,827 – 6,455,813 Tankers and vessels 3,478,550,594 243,553,408 74,623,779 3,647,480,223 Drilling rigs 4,694,425,826 1,082,422,562 3,088,539 5,773,759,849 Machinery and equipment 1,503,430,725 498,228,180 50,196,828 1,951,462,077 Other vehicles 32,039,951 10,070,961 1,881,825 40,229,087

Total 9,712,241,082 1,836,936,938 129,790,971 11,419,387,049

Net carrying amount Land and buildings 35,088,081 (2,455,027) – 32,633,054 Tankers and vessels 2,543,451,771 734,013,230 97,101,762 3,180,363,239 Drilling rigs 2,001,224,262 15,195,075,837 (31,483,139) 17,227,783,238 Machinery and equipment 2,573,450,697 1,117,371,177 24,925,212 3,665,896,662 Other vehicles 30,144,636 1,147,393 760,588 30,531,441

Total 7,183,359,447 17,045,152,610 91,304,423 24,137,207,634

Impairment provision Land and buildings – – – – Tankers and vessels – – – – Drilling rigs – – – – Machinery and equipment – – – – Other vehicles – – – –

Total – – – –

Carrying amount Land and buildings 35,088,081 (2,455,027) – 32,633,054 Tankers and vessels 2,543,451,771 734,013,230 97,101,762 3,180,363,239 Drilling rigs 2,001,224,262 15,195,075,837 (31,483,139) 17,227,783,238 Machinery and equipment 2,573,450,697 1,117,371,177 24,925,212 3,665,896,662 Other vehicles 30,144,636 1,147,393 760,588 30,531,441

Total 7,183,359,447 17,045,152,610 91,304,423 24,137,207,634

note 1: According to Accounting Standards for Business Enterprises No. 20 – Business Combination, in 2009, the Group adjusted the purchase price allocation of the acquisition of CDE as further described in Note 5(51).

Annual Report 2009 137 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated fi nancial statements (continued) (12) Fixed assets (continued) Th e provision for depreciation in 2009 was RMB2,331,609,328 (2008: RMB1,282,367,194). Th e original cost of the fi xed assets transferred from construction in progress in 2009 amounted to RMB8,058,722,945 (2008: RMB6,004,171,640). As at 31 December 2009, fi xed assets of an original cost of RMB7,294,714,478 have been fully depreciated but continue to be used by the Group, and the carrying value of such assets amounted to RMB275,712,344 (2008: fi xed assets of an original cost of RMB3,491,973,839 have been fully depreciated but continue to be used by the Group, and the carrying value of such assets amounted to RMB158,951,560). Th e Group had no signifi cant temporarily-idle fi xed assets as at 31 December 2009. Th e Group had no ownership-restricted fi xed assets as at 31 December 2009. Th e Group had no fi xed assets held for sale as at 31 December 2009. Th e carrying amount of the fi xed assets under operating leases of the Group is as follows:

Drilling Platform 2009 2008

COSL Power 880,452,451 921,015,270

(13) Construction in progress

31 December 2009 Carrying Impairment amount provision Book balance

200ft platform 1,513,527,628 – 1,513,527,628 350ft drilling platform 1,363,758,496 – 1,363,758,496 Two lift boat multi-functional drilling platforms 679,210,800 – 679,210,800 Deep water 3-purpose workboat 272,511,574 – 272,511,574 Exploration 12 cable ship construction 186,506,661 – 186,506,661 N5 shipyard renovation 146,878,750 – 146,878,750 Deep water reconnaissance vessel 129,117,795 – 129,117,795 6-type-3-purpose workboat 71,131,964 – 71,131,964 ELIS system 62,215,931 – 62,215,931 Indonesia barge 49,693,196 – 49,693,196 Fracturing equipment – – – Submarine cable ﬂ otilla 5,481,969 – 5,481,969 Libya land drilling machine – – – BZ19-4 module drilling machine – – – Jack-up rigs – COSL Conﬁ dence – – – – COSL Strike – – – Semi-submersible rigs – COSL Innovator 2,203,825,106 (443,833,000) 1,759,992,106 – COSL Pioneer 2,469,987,522 – 2,469,987,522 – COSL Promoter 2,031,990,026 (375,551,000) 1,656,439,026 Drilling packages 1,268,803,872 – 1,268,803,872 Others 2,511,943,428 – 2,511,943,428

14,966,584,718 (819,384,000) 14,147,200,718

138 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (13) Construction in progress (continued)

31 December 2008 Carrying Impairment amount provision Book balance Restated Restated (note 1) (note 1)

Marine oil 942 – – – Two lift boat multi-functional drilling platforms 529,973,522 – 529,973,522 6-type-3-purpose workboat 968,487,131 – 968,487,131 HYSY 931 renovation 44,262 – 44,262 8 cable ship renovation – – – 350ft drilling platform 1,224,638,922 – 1,224,638,922 Indonesia barge 369,858,767 – 369,858,767 Libya land drilling machine 163,952,747 – 163,952,747 200ft platform 129,817,430 – 129,817,430 Exploration 12 cable ship construction 80,092,706 – 80,092,706 Jack-up rigs – COSL Conﬁ dence 856,831,569 – 856,831,569 – COSL Seeker – – – – COSL Strike 911,435,552 – 911,435,552 Semi-submersible rigs – COSL Innovator 2,016,769,519 – 2,016,769,519 – COSL Pioneer 2,148,960,808 – 2,148,960,808 – COSL Promoter 1,514,057,836 – 1,514,057,836 Drilling packages 787,481,598 – 787,481,598 Others 3,726,547,545 – 3,726,547,545

15,428,949,914 – 15,428,949,914

Annual Report 2009 139 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (13) Construction in progress (continued)

At the Increase during the year Decrease during the year beginning Project investment of the year Purchase Transfer from Transfer to Transfer to Exchange At the end as proportion 2009 Budget (restated) ﬁ xed assets ﬁ xed assets intangible assets realignment of the year Capital source of budget (note 1)

200ft platform 2,959,840,000 129,817,430 1,383,710,198 - - - - 1,513,527,628 Self-fi nancing 51% 350ft drilling platform 2,938,190,000 1,224,638,922 1,539,315,336 - (1,400,195,762) - - 1,363,758,496 Fund raised 94% from issue of A share Two lifeboat 698,910,000 529,973,522 149,237,278 - - - - 679,210,800 Bonds and fund raised multi-functional drilling from issue of A share 97% platforms Deep water 1,564,180,000 1,839,138 270,672,436 - - - - 272,511,574 Fund raised 3-purpose workboat from issue of A share 17% Exploration 12 cable 1,148,990,000 80,092,706 106,413,955 - - - - 186,506,661 Fund raised 16% ship construction from issue of A share N5 shipyard renovation 80,320,000 - - 146,878,750 - - - 146,878,750 Self-fi nancing - Deep water reconnaissance 528,990,000 26,076,472 103,041,323 - - - - 129,117,795 Fund raised 24% vessel from issue of A share 6-type-3-purpose workboat 1,968,524,095 968,487,132 397,396,977 - (1,294,752,145) - - 71,131,964 Bonds and fund raised 90% from issue of A share ELIS system 500,000,000 88,169,296 52,631,889 - (78,585,254) - - 62,215,931 Self-fi nancing 66% Indonesia barge 630,841,000 369,858,766 144,834,430 - (465,000,000) - - 49,693,196 Self-fi nancing 82% Fracturing equipment 74,753,000 43,431,514 3,239,345 - (46,670,859) - - - Self-fi nancing 100% Submarine cable fl otilla 296,764,000 299,795 184,975,921 - (179,793,747) - - 5,481,969 Self-fi nancing 62% Libya land drilling machine 455,000,105 163,952,747 556,830 - (164,509,577) - - - Self-fi nancing 100% BZ19-4 module drilling machine 114,060,000 26,708,472 74,478,776 - (101,187,248) - - - Self-fi nancing 100% Jack-up rigs – COSL Confi dence 1,017,878,600 856,831,569 228,830,052 - (1,084,152,866) - (1,508,755) - Self-fi nancing and loans 100% – COSL Strike 1,113,518,200 911,435,552 243,781,264 - (1,153,776,549) - (1,440,267) - Self-fi nancing and loans 100% Semi-submersible rigs – COSL Innovator 2,800,874,000 2,016,769,519 189,201,319 - - - (2,145,732) 2,203,825,106 Self-fi nancing and loans 79% – COSL Pioneer 2,732,560,000 2,148,960,808 323,556,349 - - - (2,529,635) 2,469,987,522 Self-fi nancing and loans 90% – COSL Promoter 2,800,874,000 1,514,057,836 519,748,387 - - - (1,816,197) 2,031,990,026 Self-fi nancing and loans 73%

COSL Rig4 3,415,700,000 787,481,598 482,379,682 - - - (1,057,408) 1,268,803,872 Self-ﬁ nancing and loans 47% Others - 3,540,067,120 1,080,545,366 - (2,090,098,938) (18,570,120) - 2,511,943,428

Total 27,840,767,000 15,428,949,914 7,478,547,113 146,878,750 (8,058,722,945) (18,570,120) (10,497,994) 14,966,584,718

140 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) (13) Construction in progress (continued) Capitalized interest expenditure of the Group in 2009 amounted to RMB264,943,374 (Note 5(39)), and the capitalization rate of capitalized amount of borrowing cost was 3.37%. As at 31 December 2009, the semi-submersible drilling rigs COSL Innovator (formerly known as “WilInnovator”) and COSL Pioneer (formerly known as “WilPioneer”) being constructed by CDE with a value of RMB4,673,812,628 have been pledged as security for its bonds. Please refer to Note 5(29) for details.

Increase during the year Decrease during the year

Transfer to Project At the Transfer Acquisition Transfer to long-term At the investment as 2008 beginning from of a Transfer to intangible equity Exchange end of proportion Restated (note 1) Budget of the year Purchases ﬁ xed assets subsidiary ﬁ xed assets assets investments realignment the year Capital source of budget

HYSY 942 1,447,670,000 1,239,136,997 62,789,384 – – (1,301,926,381) – – – – Self-fi nancing, 100% bonds and fund raised from issue of A share Two lift boat multi-functional 599,330,000 215,882,260 314,091,262 – – – – – – 529,973,522 Self-fi nancing, 88% drilling platforms bonds and fund raised from issue of A share 6-type-3-purpose workboat 1,922,766,000 584,194,255 796,292,876 – – (412,000,000) – – – 968,487,131 Self-fi nancing, 72% bonds and fund raised from issue of A share HYSY 931 renovation 312,577,000 452,735,087 202,445,960 – – (655,136,785) – – – 44,262 Bonds and fund 99% raised from issue of A share 8 cable ship renovation 530,230,000 446,092,240 70,590,529 46,343,593 – (563,026,362) – – – – Self-fi nancing, 100% bonds and fund raised from issue of A share 350ft drilling platform 2,938,200,000 313,323,815 911,315,107 – – – – – – 1,224,638,922 Self-fi nancing and 41% fund raised from issue of A share Indonesia barge 689,810,000 98,819 369,759,948 – – – – – – 369,858,767 Self-fi nancing and loans 54% Libya land drilling machine 402,802,000 – 374,702,978 – – (210,750,231) – – – 163,952,747 Self-fi nancing 93% 200ft platform 2,960,000,000 24,413 129,793,017 – – – – – – 129,817,430 Self-fi nancing 4% Exploration 12 cable ship 1,148,990,000 377,226 79,715,480 – – – – – – 80,092,706 Fund raised from 7% construction Jack-up rigs – COSL Confi dence 1,772,733,198 – 141,770,368 – 713,355,835 – – – 1,705,366 856,831,569 Self-fi nancing and loans 48% – COSL Seeker 1,740,674,776 – 21,185,336 – 1,745,484,800 (1,770,842,936) – – 4,172,800 – Self-fi nancing and loans 100% – COSL Strike 1,740,674,776 – 41,293,128 – 868,067,201 – – – 2,075,223 911,435,552 Self-fi nancing and loans 52% Semi-submersible rigs – COSL Innovator 3,808,158,217 – 49,690,736 – 1,962,387,450 – – – 4,691,333 2,016,769,519 Self-fi nancing and loans 53% – COSL Pioneer 3,539,171,099 – 295,632,507 – 1,848,908,254 – – – 4,420,047 2,148,960,808 Self-fi nancing and loans 61% – COSL Promoter 3,822,266,779 – 148,863,215 – 1,361,938,736 – – – 3,255,885 1,514,057,836 Self-fi nancing and loans 40% Drilling packages 3,417,300,000 – 14,556,088 – 771,082,142 – – – 1,843,368 787,481,598 Self-fi nancing and loans 23% Others – 414,026,940 1,441,807,810 – 2,964,473,027 (1,090,488,945) (8,497,020) (5,635,516) 10,861,249 3,726,547,545

Total 32,793,353,845 3,665,892,052 5,466,295,729 46,343,593 12,235,697,445 (6,004,171,640) (8,497,020) (5,635,516) 33,025,271 15,428,949,914

note 1: According to Accounting Standards for Business Enterprises No. 20 – Business Combination, in 2009, the Group adjusted the purchase price consideration of the acquisition of CDE as further described in Note 5(51).

Annual Report 2009 141 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 13. Construction in progress (continued)

Impairment provision of construction in progress

At the beginning Increase during Decrease during Exchange At the end 31 December 2009 of the year the year the year realignment of the year

Semi-submersible rigs – COSL Innovator (note 1) – 444,106,389 – (273.389) 443,833,000 – COSL Promoter (note 1) – 375,782,329 – (231,329) 375,551,000

– 819,888,718 – (504,718) 819,384,000

note 1: Impairment loss of construction in progress of USD120,000,000 (RMB819,888,718) (2008: nil) was recognized by the Group when preparing the 2009 interim report, primarily arising from the adverse change of macroeconomic environment since the second half of 2008 and the delay in the delivery of the two semi-submersible drilling platforms mentioned above, which caused the carrying amount of the semi-submersible drilling platforms under construction mentioned above was lower than their respective recoverable amounts. Th e management of the Group performed a further assessment when preparing the fi nancial statements of the year and believes that no further impairment provision is required. Th e recoverable amount was estimated based on the respective rig by the Group. Calculation of the recoverable amount was mainly based on the present value of projected future cash fl ows of the platforms. Th e cash fl ows were discounted at a pre-tax rate of 9.5%.

14. Intangible assets Th e Group’s intangible assets principally comprise land use rights, management system, soft ware and contract value.

Balance at Increase Decrease Balance the beginning during during at the end 2009 of the year the year the year of the year

Cost Land use rights 262,188,683 – – 262,188,683 Management system and soft ware 239,671,732 23,763,654 122,336 263,313,050 Contract value (note 1) 122,995,462 – 115,174 122,880,288

Total 624,855,877 23,763,654 237,510 648,382,021

Accumulated amortization Land use rights 906,708 5,306,120 – 6,212,828 Management system and soft ware 49,231,221 35,938,677 8,879 85,161,019 Contract value (note 1) 41,118,302 54,107,927 62,265 95,163,964

Total 91,256,231 95,352,724 71,144 186,537,811

Net carrying amount Land use rights 261,281,975 (5,306,120) – 255,975,855 Management system and soft ware 190,440,511 (12,175,023) 113,457 178,152,031 Contract value (note 1) 81,877,160 (54,107,927) 52,909 27,716,324

Total 533,599,646 (71,589,070) 166,366 461,844,210

142 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 14. Intangible assets (continued)

Balance at Balance the beginning Increase during Decrease during at the end 2008 of the year the year the year of the year

Cost Land use rights 4,670,258 257,518,425 – 262,188,683 Management system and soft ware 90,122,212 149,237,944 (311,576) 239,671,732 Contract value (note 1) – 122,702,127 (293,335) 122,995,462

Total 94,792,470 529,458,496 (604,911) 624,855,877

Accumulated amortization Land use rights 321,759 584,949 – 906,708 Management system and soft ware 26,548,621 22,735,405 52,805 49,231,221 Contract value (note 1) – 41,118,302 – 41,118,302

Total 26,870,380 64,438,656 52,805 91,256,231

Net carrying amount Land use rights 4,348,499 256,933,476 – 261,281,975 Management system and soft ware 63,573,591 126,502,539 (364,381) 190,440,511 Contract value (note 1) – 81,583,825 (293,335) 81,877,160

Total 67,922,090 465,019,840 (657,716) 533,599,646

note 1: Please refer to the note 2 of Note 5(31) for details. Amortization of intangible assets amounted to RMB95,352,724 in 2009 (2008: RMB64,438,656).

15. Goodwill

Increase during the year Adjustment of the purchase Balance at price allocation Decrease Balance at the beginning Acquisition of of acquisition during Exchange the end Impairment of the year a subsidiary of a subsidiary the year realignment of the year provision

2009 4,604,785,191 – – – (4,311,977) 4,600,473,214 –

2008 Restated (note 1) – 3,472,240,505 1,124,243,860 – 8,300,826 4,604,785,191 –

note 1: Th e Group acquired CDE as at 28 September 2008, resulting in a goodwill amounting to RMB4,596,484,365. Please refer to Note 5(51) for relevant calculation. In 2009, the Group had made a restatement based on the adjusted purchase price allocation. Goodwill acquired through business combinations has been allocated to the drilling assets unit, which is also the drilling reporting segment, for impairment test. Th e recoverable amount of the cash-generating unit has been determined based on a value in use calculation using cash fl ow projections based on fi nancial budgets covering a fi ve-year period approved by senior management. Th e pre-tax discount rate applied to the cash fl ow projections is 9.5% (2008: 9.5%), and the cash fl ow over a fi ve-year period is extrapolated using a constant growth rate.

Annual Report 2009 143 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated fi nancial statements (continued) 15. Goodwill (continued) Key assumptions were used in the calculation of the present value of projected future cash fl ows of the drilling assets unit of 31 December 2009 as at 31 December 2009 and 31 December 2008. Th e following describes the key assumptions made by the management in determination of its cash fl ow projections for impairment testing of goodwill. Discount rates – Th e discount rates used refl ect specifi c risks relating to the drilling assets unit. Th e values assigned to key assumptions which include drilling rig utilization rates, day rates and projected expenses are consistent with external information sources and historical trends.

16. Long-term deferred expenses Th e long-term deferred expenses of the Group include large scale drilling tools in use, logging tools and vessel cables, etc.

2009 2008

Cost: Balance at the beginning of the year 1,370,169,266 637,140,827 Purchases 510,502,532 733,028,439

Balance at the end of the year 1,880,671,798 1,370,169,266

Accumulated amortization: Balance at the beginning of the year 600,916,495 384,187,798 Provision 438,204,056 216,728,697

Amount at the end of the year 1,039,120,551 600,916,495

Impairment provision: Balance at the beginning of the year – – Provision – – Write-oﬀ – –

Balance at the end of the year – –

Carrying amount: Balance at the end of the year 841,551,247 769,252,771

Balance at the beginning of the year 769,252,771 252,953,029

144 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 17. Provision for impairment of assets

Balance at Provision Balance at the beginning during Exchange the end of the year the year Decrease during the year realignment of the year 31 December 2009 Write-back Write-oﬀ

Provision for impairment of accounts receivable and other receivables 56,096,276 96,480,675 (53,052,333) – (2,715) 99,521,903 Provision for impairment of inventories 15,693,817 2,830,878 (1,760,213) – 16,764,482 Provision for impairment of construction in progress – 819,888,718 – – (504,718) 819,384,000 Impairment provision for available-for-sale ﬁ nancial assets 106,508,218 15,003,044 – – – 121,511,262

Total 178,298,311 934,203,315 (53,052,333) (1,760,213) (507,433) 1,057,181,647

Balance at Provision Balance at the beginning during Exchange the end of the year the year Decrease during the year realignment of the year 31 December 2008 Write-back Write-oﬀ

Provision for impairment of accounts receivable and other receivables 7,187,093 49,943,861 (812,192) – (222,486) 56,096,276 Provision for impairment of inventories 11,840,579 3,853,238 – – – 15,693,817 Impairment provision for available-for-sale ﬁ nancial assets – 106,508,218 – – – 106,508,218

Total 19,027,672 160,305,317 (812,192) – (222,486) 178,298,311

18. Short-term bank borrowings

31 December 2009 Interest rate Security 31 December 2008

Syndicated bank borrowing – LIBOR+1.7% Secured 6,359,458,608 Nordea Bank Norge ASA – LIBOR+2.25% Secured 476,138,316

– 6,835,596,924

As at 31 December 2009, the Group had no overdue short-term borrowings.

Annual Report 2009 145 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 19. Notes payable

31 December 31 December 2009 2008

Banker’s acceptances – 366,762,500

20. Accounts payable Accounts payable are non-interest-bearing and are normally settled on terms ranging from one month to two years. Th e accounts payable as at 31 December 2009 did not include accounts payable to the shareholders holding 5% or more voting rights of the Company (31 December 2008: nil). Th e accounts payable balance as at 31 December 2009 included an amount of RMB152,498,047 payable to the related parties (31 December 2008: RMB104,699,088). Please refer to Note 6(5) for details. Signiﬁ cant balance of accounts payable which was aged over one year as at 31 December 2009 is set forth below:

Company Amount payable Reason

You Lian Dockyards (Shekou) Limited 24,186,265 Within payment period Dalian Shipbuilding Industry Co., Ltd. 137,759,131 Within payment period Lehman Brothers Holding Inc. (Lehman) 140,681,821 CNA signed a swap contract with Lehman in 2008, which was terminated as Lehman went bankrupt. However, according to ISDA, CNA still needed to pay the expense between the date of signing of the contract and the date of termination of the contract, the speciﬁ c amount of which remained under negotiations.

With respect to the above signiﬁ cant balance of accounts payable which was aged over one year, the repaid amount aft er the balance sheet date was nil. Th e Group’s accounts payable are mainly denominated in RMB or US$. As at 31 December 2009, accounts payable included balances denominated in US$ of US$95,422,146 (RMB651,561,495) (31 December 2008: US$103,799,670 (RMB709,429,228)).

21. Receipts in advance Th e balance of receipts in advance as at 31 December 2009 did not include any advances received from the shareholders holding 5% or more voting rights of the Company (31 December 2008: nil). Th e balance of receipts in advance as at 31 December 2009 did not include any advances received from a related party, CNOOC Limited (31 December 2008: RMB33,519,000). Th e Group had no signiﬁ cant balance of receipts in advance which was aged over one year as at 31 December 2009.

146 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 22. Staﬀ cost payable

Amount at Amount at the beginning Current year Current year the end 31 December 2009 of the year additions payments of the year

Current Salaries, bonuses, allowances and subsidies 378,799,258 2,393,040,825 2,346,407,991 425,432,092 Staﬀ welfares 6,629,107 162,601,470 163,122,243 6,108,334 Social insurances 83,433,677 250,998,151 315,501,556 18,930,272 Including: Basic pension insurance 55,213,126 117,056,112 154,081,748 18,187,490 Medical insurance 30,854 43,484,879 42,815,515 700,218 Unemployment insurance 112,580 8,740,012 8,806,250 46,342 Work-related injury insurance 17,600 2,541,727 2,541,622 17,705 Maternity insurance 8,801 3,023,200 3,024,187 7,814 Commercial insurance 28,437,281 37,811,848 66,102,890 146,239 Annuity (386,565) 38,340,373 38,129,344 (175,536) Housing fund (22,490) 73,755,827 73,797,242 (63,905) Union fees and education fees 17,035,710 43,424,169 33,459,577 27,000,302

Sub-total 485,875,262 2,923,820,442 2,932,288,609 477,407,095

Non-current Pension costs, deﬁ ned beneﬁ t/contribution scheme (note 1) 5,663,626 1,929,361 6,211,929 1,381,058

491,538,888 2,925,749,803 2,938,500,538 478,788,153

Balance at Balance at the beginning Current year Acquisition of Current year the end 31 December 2008 of the year additions a subsidiary payments of the year

Current Salaries, bonuses, allowances and subsidies 330,634,253 1,735,078,887 – 1,686,913,882 378,799,258 Staﬀ welfares 20,510,348 120,144,264 – 134,025,505 6,629,107 Social insurances 29,548,102 268,385,720 – 214,500,145 83,433,677 Including: Basic pension insurance 1,332,574 149,844,997 – 95,964,445 55,213,126 Medical insurance (3,487) 26,250,096 – 26,215,755 30,854 Unemployment insurance 88,163 7,838,123 – 7,813,706 112,580 Work-related injury insurance 11,047 2,342,789 – 2,336,236 17,600 Maternity insurance (25,863) 2,698,160 – 2,663,496 8,801 Commercial insurance 24,260,122 36,194,376 – 32,017,217 28,437,281 Annuity 3,885,546 43,217,179 – 47,489,290 (386,565) Housing fund (214,847) 52,877,121 – 52,684,764 (22,490) Union fees and education fees 16,972,826 40,611,207 – 40,548,323 17,035,710

Sub-total 397,450,682 2,217,097,199 – 2,128,672,619 485,875,262

Non-current Pension costs, deﬁ ned beneﬁ t/ contribution scheme (note 1) – 4,751,442 3,067,171 2,154,987 5,663,626

Total 397,450,682 2,221,848,641 3,067,171 2,130,827,606 491,538,888

Annual Report 2009 147 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated fi nancial statements (continued) 22. Staff cost payable (continued) Th ere was no accrued payroll in arrears or performance-linked compensation in the consolidated fi nancial statements of the Group as at the balance sheet date. In 2009, union fees and education fees amounted to RMB43,424,169 (2008: RMB40,611,207); non-monetary welfare was RMB2,500,152 (2008: RMB2,974,670); no compensation was incurred arising from release of labor (2008: nil). note 1: Explanation of defi ned benefi t scheme CDE, a subsidiary of the Company, has various pension plans for its employees. CDE has a defi ned benefi t scheme set up together with a life insurance company for the provision of pension benefi ts for certain employees in Norway. Th e scheme provides entitlement to benefi ts based on future service from the commencement date of the scheme. Th ese benefi ts principally depend on an employee’s pension qualifying period, salary at retirement age and the size of benefi ts from the National Insurance Scheme. Full retirement pension will amount to approximately 70% of the scheme pension-qualifying income (limited to the Norway National Insurance Basic Amount as the terms agreed). Th e scheme also includes entitlement to disability, spouses and children’s pensions. Th e retirement age under the scheme is 67 years old. CDE may at any time make alterations to the terms and conditions of the pension scheme and undertake that they will inform the employees of any such changes. Th e benefi ts accruing under the scheme are funded obligations. Changes in the pension obligations as a result of adjusted actuarial assumptions and variations between actual and anticipated return on pension funds, will be recorded on the average remaining earnings period according to the “corridor” regulations.

31 December 31 December 2009 2008

Pension cost Service cost 969,849 3,468,788 Interest cost 53,404 685,683 Estimated returns on plan assets (49,973) (465,241) General and administrative expenses 108,196 67,641 Amortization of past service cost – – Amortization of actuarial gains 710,653 474,390

Net pension cost 1,792,129 4,231,261 Social security tax 137,232 520,181

Total 1,929,361 4,751,442

Beneﬁ t assets/(obligation) Beneﬁ t obligation (2,257,027) (21,715,902) Plan assets 6,757,359 9,489,444

Funded status 4,500,332 (12,226,458) Social security tax (230,046) (1,723,931) Unamortized actuarial gains, past service cost (5,651,344) 8,286,763

Net obligation (1,381,058) (5,663,626)

Movements in the benefi t asset/(obligation) during the year Benefi t asset/(obligation), balance at the beginning of the year (5,663,626) – Acquisition of a subsidiary – (3,067,171) Benefi t expense (1,929,361) (4,751,442) Contributions 6,211,929 2,154,987

Beneﬁ t obligation, balance at the end of the year (1,381,058) (5,663,626)

148 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated fi nancial statements (continued) 22. Staff cost payable (continued) note 1: Explanation of defi ned benefi t scheme (continued)

2009 2008

Assumptions

Estimated return on plan assets 6% 6% Discount rate 4% 5% Salary increase 4% 5% Increase of National Insurance 4% 4% Rate of pension increase 1.50%-3.75% 1.75%-4.25% Voluntary resignations 0-8% 0-8% Social security tax 14% 14%

Analysis of the plan assets

Th e asset allocation at the end of the period is set out as follows: Debt instruments 55% 52% Equity instruments 7% 27% Money market and similar 22% 9% Property 16% 12%

Total 100% 100%

Annual Report 2009 149 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 23. Taxes payable

31 December 31 December 2009 2008

Corporate income tax 86,825,656 252,460,375 Business tax 126,625,018 56,029,365 Value added tax (33,559,625) (8,199,026 ) Urban maintenance and construction tax 4,450,954 4,429,050 Individual income tax (33,497,166) 23,606,967 Education surcharge 2,181,480 2,059,820 Other overseas taxes 43,925 12,911,906

Total 153,070,242 343,298,457

Th e respective basis of provision and tax rates for taxes payables are set out in Note 3 to the ﬁ nancial statements.

24. Interest payable Th e balance of interest payable as at 31 December 2009 is set out as follows:

At the Payable Paid Payable at beginning during during the end of the year the year the year of the year

Borrowings 195,026,299 807,600,817 (963,710,269) 38,916,847 Bonds 132,935,343 284,133,542 (316,772,874) 100,296,011

Total 327,961,642 1,091,734,359 (1,280,483,143) 139,212,858

Th e balance of interest payable as at 31 December 2008 is set out as follows:

At the Payable Paid Payable at beginning during during the end of the year the year the year of the year

Borrowings 43,375,880 412,462,733 (260,812,314) 195,026,299 Bonds 42,000,000 172,733,398 (81,798,055) 132,935,343

Total 85,375,880 585,196,131 (342,610,369) 327,961,642

150 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 25. Other payables

31 December 31 December 2009 2008

Amounts due to CNOOC 3,248,229 3,248,229 Marine meal fees payable 33,257,730 27,996,746 Service fees for contracted workers 16,814,778 12,618,716 Equipment cost payable 292,582 4,982,749 Amounts due to other related parties 38,293,528 35,063,419 Deposits and quality guarantee fees 1,505,411 3,238,892 Scientiﬁ c research cooperation fees payable – 4,126,572 Amounts due to the jointly-controlled entities 32,463,059 93,867,419 Service fees payable 167,470,890 167,954,456 Others 65,481,514 282,930,011

Total 358,827,721 636,027,209

Th e balance of other payables as at 31 December 2009 included an amount of RMB3,248,229 (31 December 2008: RMB3,248,229) due to CNOOC, which held 53.63% voting rights of the Company. As at 31 December 2009, the Group had no other payables with the aging of more than one year.

26. Current portion of non-current liabilities Current portion of long-term borrowings is set out as follows:

31 December 31 December 2009 2008

Secured borrowings (note 1) 39,081,032 699,020,215 Unsecured borrowings 244,000,000 244,000,000

Total 283,081,032 943,020,215

Th e breakdown of the current portion of long-term borrowings as at 31 December 2009 is set out as follows:

Borrowing Interest rate Starting date Ending date %

Export-Import Bank of China 1 June 2006 30 June 2010 Interest rate of similar loan type quoted by the People’s Bank of China Export-Import Bank of China 19 November 2008 19 November 2010 Interest rate of similar loan type quoted by the People’s Bank of China Eksportﬁ nans 1 August 2006 24 August 2010 3.20%

Annual Report 2009 151 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 26. Current portion of non-current liabilities (continued)

Balance at the end of 2009 Balance at the end of 2008 Foreign RMB Foreign RMB Currency currency equivalent currency equivalent

Export-Import Bank of China RMB – 200,000,000 – 200,000,000 Export-Import Bank of China RMB – 44,000,000 – 44,000,000 Eksportﬁ nans US$ 5,723,475 39,081,032 5,723,475 39,117,655 Nordea Bank Norge ASA US$ – – 96,553,209 659,902,560

283,081,032 943,020,215

note 1: In August 2006, CDE entered into a loan agreement of US$28,600,000 with Eksportﬁ nans, a Norway-based export credit institution. Th e loan was granted based on CDE’s extensive use of Norwegian suppliers in the construction of the jack-up drilling rig, COSL Power (formerly as “WilPower”) and carried a ﬁ xed interest rate of 3.2%. Th e loan was to be repaid in semi-annual installments beginning six months aft er the loan drawdown date. Th e aggregate amount of the loan was US$28,600,000 and the bank deposits in an account of DnBNOR, an agent bank served as a security of the loan.

27. Derivative ﬁ nancial instruments

31 December 31 December 2009 2008

Cross currency interest rate swap – 49,307,921

In 2007, CDE, a subsidiary of the Group, acquired a cross currency interest swap agreement relating to the NOK500 million bond notes with Nordea Bank. Th is swap receives NOK and pays US$ for a total amount of NOK250 million and has a maturity of 6 July 2010 (matching the maturity of the underlying bond). Part of the NOK bond (NOK250 million), subject to a rate of 3 month NIBOR + 2.25%, has been swapped with a 3 month US LIBOR + 2.40%. Th is swap agreement has been entered into between CDE and Nordea Bank to minimize the exposure to ﬂ uctuations in the US$/NOK exchange rate. Th e NOK500 million bond was fully redeemed and the swap agreement was accordingly cancelled as at 31 December 2009.

28. Long-term bank borrowings

31 December 31 December 2009 2008

Secured borrowings (note 1) 39,081,025 9,987,766,023 Unsecured borrowings 28,111,958,918 6,367,680,000

Total 28,151,039,943 16,355,446,023

note 1: Please refer to Note 5(26) for details of the security of the secured borrowings.

152 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 28. Long-term bank borrowings (continued) Th e ﬁ ve largest long-term bank borrowings as at 31 December 2009 are as follows:

Borrowings Interest rate Starting date Ending date %

Bank of China 14 May 2009 29 April 2017 LIBOR+1.38% Bank of China 25 May 2009 24 May 2017 LIBOR+0.9% Export-Import Bank of China 1 September 2008 2 September 2020 LIBOR+1.7% Industrial and Commercial Bank of China 22 May 2009 21 May 2017 LIBOR+0.9% CNOOC Finance Co., Ltd. 19 June 2009 10 June 2011 Annual interest rate of the loan at 3.71%; commission of the entrusted loan at 0.275%

Balance at the end of 2009 Balance at the end of 2008 Foreign Local Foreign Local Currency currency currency currency currency

Bank of China US$ 1,580,000,000 10,777,454,682 – – Export-Import Bank of China US$ 800,000,000 5,462,560,000 800,000,000 5,467,680,000 Bank of China US$ 800,000,000 5,369,024,236 – – Industrial and Commercial Bank of China US$ 600,000,000 4,096,920,000 – – CNOOC Finance Co., Ltd. RMB – 800,000,000 – –

26,505,958,918 5,467,680,000

As at 31 December 2009, the Group had no long-term bank borrowing due but outstanding.

29. Long-term bonds

Balance at Balance at 31 December 2009 the beginning Increase in Decrease in Exchange the end of Bond name of the year the year the year realignment the year

COSL corporate bond (note 1) 1,500,000,000 – – – 1,500,000,000 Senior unsecured NOK bond (note 2) 485,743,801 – 485,502,159 (241,642) – Senior unsecured US$ bond (note 3) 675,948,880 2,060,109 115,447,280 (583,171) 561,978,538 Second security priority US$ bond (note 4) 1,366,649,193 4,700,952 762,361,920 (947,011) 608,041,214

Total 4,028,341,874 6,761,061 1,363,311,359 (1,771,824) 2,670,019,752

Annual Report 2009 153 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 29. Long-term bonds (continued)

Balance at Arising from Balance at 31 December 2008 the beginning Increase in acquisition of Exchange the end of Bond name of the year the year a subsidiary realignment the year

COSL corporate bond (note 1) 1,500,000,000 – – – 1,500,000,000 Senior unsecured NOK bond (note 2) – – 580,300,815 (94,557,014) 485,743,801 Senior unsecured US$ bond (note 3) – 2,806,076 671,537,410 1,605,394 675,948,880 Second security priority US$ bond (note 4) – 26,622 1,363,363,280 3,259,291 1,366,649,193

Total 1,500,000,000 2,832,698 2,615,201,505 (89,692,329) 4,028,341,874

note 1: On 18 May 2007, the Group issued 15-year corporate bonds, with a nominal value of RMB100.00 per bond, amounting to RMB1,500 million. Th e bonds carry interest at a fi xed coupon rate of 4.48% per annum, which is payable annually in arrears on 14 May, and the redemption or maturity date is 14 May 2022. note 2: CDE issued unsecured bonds in July 2007, with a book value of NOK500 million and at interest rate of NIBOR+2.25%. Th e bullet maturity is three years. Th e bonds were fully redeemed during the year of 2009. note 3: CDE issued bonds in February 2006, with a book value of US$100 million. Th e bonds are unsecured, have a fi ve-year bullet maturity and carry a fi xed coupon rate of 9.75%. Part of the bonds was redeemed by the Group during the year. note 4: COSL Drilling Semi AS (formerly known as Off Rig Drilling ASA), a controlling subsidiary of CDE, issued bonds in April 2006, with a book value of US$200 million and with a second security priority mortgage in the construction contracts relating to semi-submersible rigs COSL Innovator (formerly known as “WilInnovator”) and, COSL Pioneer (formerly known as “WilPioneer”). Th e company incurred debt issuance costs of US$4.5 million, which are capitalized and amortized as a component of interest expense over the term of the bonds. Th e bonds are shown net of issue costs in the balance sheet. Th e bonds carry a fi xed coupon rate of 9.75% and have a fi ve-year bullet maturity. Part of the bonds was redeemed by the Group during the year. Th e balance of long-term bonds as at 31 December 2009 is set out as follows:

Bond Balance at the Bond name Nominal value Issue date maturity Issue amount end of the year

COSL corporate bond RMB1,500,000,000 18 May 2007 15 years RMB1,500,000,000 1,500,000,000 Senior unsecured US$ bond US$100,000,000 28 February 2006 5 years US$100,000,000 561,978,538 Second security priority US$ bond US$200,000,000 27 April 2006 5 years US$195,500,000 608,041,214

Total 2,670,019,752

Th e balance of long-term bonds as at 31 December 2008 is set out as follows:

Bond Balance at the Bond name Nominal value Issue date maturity Issue amount end of the year

COSL corporate bond RMB1,500,000,000 18 May 2007 15 years RMB1,500,000,000 1,500,000,000 Senior unsecured US$ bond US$100,000,000 28 February 2006 5 years US$100,000,000 675,948,880 Second security priority US$ bond US$200,000,000 27 April 2006 5 years US$195,500,000 1,366,649,193 Senior unsecured NOK bond NOK500,000,000 6 July 2007 3 years NOK500,000,000 485,743,801

Total 4,028,341,874

154 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 30. Deferred tax assets and liabilities Recognized deferred tax assets and deferred tax liabilities

31 December 31 December 2009 2008 Restated (note 5)

Deferred tax assets: Provision for staﬀ bonuses (note 1) (114,573,831 ) (112,551,940) Amortization of intangible assets – (1,135,456) Accrued liabilities (76,278,787) (3,533,488) Tax losses carried forward (16,404,539) (29,299,930) Others (29,065,372 ) (19,307,744)

(236,322,529 ) (165,828,558)

Deferred tax liabilities: Accelerated depreciation of ﬁ xed assets (note 2) 766,959,825 641,254,966 Revaluation surplus of ﬁ xed assets (note 3) 58,145,000 100,250,000 Deferred tax liabilities arising from acquisition of a subsidiary (note 4) 1,118,458,334 1,119,821,874 Others 83,548,399 1,633,469

2,027,111,558 1,862,960,309

Net deferred tax liabilities 1,790,789,029 1,697,131,751

note 1: Th e Group made provision for staff bonuses at the end of the year. Pursuant to the tax laws and regulations, any unpaid wages, bonuses and the relating provisions of welfares and union fees are non-deductible from the taxable income for the year, but will be deducted from the taxable income when those wages and bonus are actually paid in future period. Accordingly, deferred tax assets are recognized for the deductible temporary diff erences. note 2: Pursuant to the tax laws and regulations, vessels and drilling rigs are depreciated over 10 years and 6 years respectively, which can be deducted for corporate income tax purpose. However, the Company’s management considers that the reasonable estimated useful lives of vessels and drilling rigs are 10 to 20 years and 25 years respectively. Accordingly, the deferred tax liabilities are calculated by the diff erences between the book value of these fi xed assets and tax base as well as its future applicable tax rate. note 3: Th e Group appointed China Consultants of Accounting and Financial Management Co., Ltd. to perform valuation for the fi xed assets as injected into the Company by CNOOC upon the reorganization of the Group in 2002. China Consultants of Accounting and Financial Management Co., Ltd. issued the Report of Assessment for Establishing China Oilfi eld Service Limited (Preparation) (Zhong Hua Ping Bao Zi No.[2002] 066) on 30 August 2002, which has fi led to the Ministry of Finance. Pursuant to the provisions of PRC tax laws, the relevant depreciation charges arising from the revaluation surplus of such fi xed assets cannot be deducted for corporate income tax purpose before relevant approval is obtained. Accordingly, deferred income tax liability arising from diff erent basis between tax and accounting is recognized on the balance sheet. note 4: During the year, the fair values of various identifi able assets and liabilities are recognized on consolidation for acquisition of CDE. As the diff erence between tax base and initial recognition amount is a temporary diff erence, the relevant deferred income tax assets or deferred income tax liabilities are recognized in accordance with the provisions of income tax accounting principles. Th e diff erences between the fair values of identifi able assets and liabilities acquired and its carrying amounts include fi xed assets, construction in progress (mainly representing drilling rigs and accommodation rigs) and intangible assets including management system, soft ware and service contracts as well as the service contracts as included in the non-current liabilities. In the opinion of the Company’s management, the composite tax rate of 18.6% is applied to those drilling rigs and accommodation rigs as they are located in various countries/regions with various tax rates. Th e deferred income tax liabilities relating to service contracts are recognized using a tax rate of 27.6%, since the drilling rigs with service contracts of which the fair value diff erences are signifi cant and expected to operate in off shore Norway, is close to the applicable tax rate in Norway, while a tax rate of 28% is applied for the management system and soft ware which are mainly used in Norway. Th e details of acquisition are set out in Note 5(51). note 5: Th e comparative fi gures of the consolidated fi nancial statements were restated based on the fi nalized purchase price allocation in accordance with the Accounting Standards for Business Enterprises No.20-Business Combinations, please refer to Note 5(51) for the detail. Th e Group has tax losses arising in CNA of approximately RMB3,476,353,793 that are available indefi nitely for off setting against future taxable profi ts of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profi ts will be available against which the tax losses can be utilised. Annual Report 2009 155 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated fi nancial statements (continued) 30. Deferred tax assets and liabilities (continued) Th e temporary diff erences corresponding to the asset or liability items giving rise to the temporary diff erences are as follows:

2009 2008

Deferred tax assets Provision for staﬀ bonuses 463,214,506 426,013,907 Amortization of intangible assets – 4,541,826 Accrued liabilities 272,424,239 12,619,600 Tax losses carried forward 58,587,639 104,642,611 Others 105,126,272 68,956,229

Total 899,352,656 616,774,173

Deferred tax liabilities Accelerated depreciation of ﬁ xed assets 2,950,313,887 2,408,031,691 Revaluation surplus of ﬁ xed assets 280,700,000 401,000,000 Deferred tax liabilities arising from acquisition of a subsidiary 3,994,494,050 3,999,363,836 Others 345,289,804 5,833,818

Total 7,570,797,741 6,814,229,345

31. Other non-current liabilities

31 December 31 December 2009 2008

Share of losses from a jointly-controlled entity (note 1) 36,398,775 72,405,161 Deferred revenue (note 2) 780,113,994 1,858,301,501

816,512,769 1,930,706,662

note 1: Represents the excess losses through sharing of the losses from a jointly-controlled entity, Atlantis Deepwater, using equity accounting method based on the equity ratio held. note 2: Deferred revenue was generated in the process of the acquisition of CDE, arising from the diﬀ erence of contracted day rates and market day rates of the drilling rigs owned by COSL Drilling Europe AS. Amongst which, for those contracted day rates of 4 jack-up drilling rigs and 1 accommodation rig higher than their market day rates, deferred revenue is recognized as an intangible asset (Note 5(14)); for those contracted day rates of 1 jack-up drilling rig, 4 semi-submersible drilling rigs and the remaining accommodation rigs lower than their market day rates, deferred revenue is recognized as a liability. Deferred assets and liabilities shall be amortized according to the related contract period using straight-line method. Due to cancellation of the drilling contract, the Group recognised part of the deferred revenue as revenue with an amount of RMB1,073,098,271 in 2009 (2008: nil).

156 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 32. Share capital Th e Company’s registered and paid-in share capital is RMB4,495,320,000, with par value of RMB1 for each share. Th e categories of shares and its structure are presented as follows:

Change during the year

Shares Balance at converted Balance at the beginning New shares Bonus from the end 2009 of the year issued shares reserves Others Sub-total of the year

Shares held by state-owned legal persons 2,460,468,000 – – – – – 2,460,468,000 Ordinary shares in RMB 500,000,000 – – – – – 500,000,000 Overseas listed foreign shares 1,534,852,000 – – – – – 1,534,852,000

Total 4,495,320,000 – – – – – 4,495,320,000

Change during the year

Shares Balance at converted Balance at the beginning New shares Bonus from the end 2008 of the year issued shares reserves Others Sub-total of the year

Total 4,495,320,000 – – – – – 4,495,320,000

33. Capital reserve

31 December 31 December 2009 2008

Capital reserve arising from Reorganization (note 1) 999,354,310 999,354,310 Share premium (note 2) 7,075,211,416 7,075,211,416 Including: Capital raised from A shares 6,098,755,426 6,098,755,426 Capital raised from H shares 976,455,990 976,455,990

Total 8,074,565,726 8,074,565,726

note 1: Th e revaluation surplus arising from the injection of assets and businesses to the Company by CNOOC upon reorganization amounted to RMB1,356,654,310, amongst which a deferred income tax liability of RMB357,300,000 arose from the revaluation surplus of the fi xed assets acquired from CNOOC by the Company during the reorganization. Th e corporate income tax eff ect arising from such revaluation surplus was recognized as deferred income tax liabilities, given that the depreciation arising from revaluation of fi xed assets is non- deductible from the future taxable income of the Company for the purpose of calculation of corporate income tax. Diff erence between such revaluation surplus on fi xed assets and recognized deferred income tax liabilities is accounted for in the capital reserve. note 2: Th is item represents the share premium arising from the public off ering of the Company’s shares, including the pubic off ering of H shares overseas in 2002 and the domestic public off ering of A shares on 25 September 2007. Share premium was recorded under the account of capital surplus according to the amount of proceeds raised net of the par value of shares and share issuance costs.

Annual Report 2009 157 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 34. Statutory reserve funds

Balance at the Increase Decrease Balance at beginning of during during the end 31 December 2009 the year the year the year of the year

Statutory reserve funds 1,000,055,668 335,584,027 – 1,335,639,695

Balance at the Increase Decrease Balance at beginning of during during the end 31 December 2008 the year the year the year of the year

Statutory reserve funds 677,614,950 322,440,718 – 1,000,055,668

Pursuant to the PRC Company Law as well as the provisions of the Articles of Associations of the Company, the statutory reserve funds are provided based on 10% of the Company’s net proﬁ t and the provision of statutory reserve funds shall cease if the accumulated amount of statutory reserve funds provided reaches 50% of the Company’s registered capital. Th e Company may provide discretionary reserve funds aft er the provision of statutory reserve funds. Discretionary reserve funds can be used to oﬀ set prior years’ accumulated losses or converted into share capital upon approval.

35. Retained earnings

31 December 31 December 2009 2008

Retained earnings at the end of last year 6,208,025,040 3,967,663,009 Net proﬁ t t for the year 3,135,316,585 3,102,241,149 Less: Provision for statutory reserve funds (335,584,027) (322,440,718) Cash dividends paid (629,344,800) (539,438,400)

Retained earnings at the end of the year 8,378,412,798 6,208,025,040

36. Proposed cash dividends

31 December 31 December 2009 2008

Category of shares: State-owned shares 344,465,520 344,465,520 Ordinary shares (“H shares”) listed abroad 214,879,280 214,978,280 Ordinary shares (“A shares”) in RMB 70,000,000 70,000,000

629,344,800 629,344,800

Th e balances of proposed cash dividends on each balance sheet date of the ﬁ nancial statements are in accordance with the respective years’ proﬁ t distribution scheme approved by the Board of Directors of the Company, which will be paid upon approval by the general meeting of shareholders.

158 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 37. Revenue and costs

2009 2008

Revenue from main business 18,345,401,415 12,430,252,591

Costs of main business 11,688,942,398 7,929,906,369

Revenue from top 5 customers in 2009 is as follows:

Ratio to Amount revenue (%)

CNOOC Limited 10,907,248,608 59% ConocoPhilips 874,588,663 5% ConocoPhillips China Inc. 696,690,846 4% Woodside Energy Ltd 683,330,117 4% Repsol 441,701,073 2%

13,603,559,307 74%

Revenue from top 5 customers in 2008 is as follows:

Ratio to Amount revenue (%)

CNOOC Limited 7,609,173,184 61% ConocoPhillips China Inc. 594,311,078 5% Kerr-McGee China Petroleum Ltd. 505,780,798 4% Woodside Energy Ltd 512,483,865 4% PEMEX 390,692,672 3%

9,612,441,597 77%

Th e Group’s revenue by category 2009 2008

Revenue from services (note 1) 18,175,231,136 12,349,720,591 Revenue from lease 170,170,279 80,532,000

Total 18,345,401,415 12,430,252,591

note 1: Th e above amount included the deferred revenue recognized by the Group in 2009. Please refer to Note 5(31) for details of the deferred revenue. Th e information of the Group’s revenue from main business and cost of main business classiﬁ ed by operating segment is set out in Note 10(5) – Segment reporting.

Annual Report 2009 159 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 38. Business taxes and surcharges

2009 2008

Business tax 431,437,068 258,412,715 Urban maintenance and construction tax 20,791,295 17,193,913 Education surcharge 10,184,451 8,631,922 Flood control expenses and others 4,334,944 3,070,019

Total 466,747,758 287,308,569

39. Financial expenses

2009 2008

Interest expense 1,091,734,359 585,196,131 Less: Capitalized interests 264,943,374 150,853,959 Less: Interest income 60,352,148 164,618,692 Exchange loss 92,685,947 91,358,207 Others 8,936,980 5,024,237

Total 868,061,764 366,105,924

Th e interest capitalized was recorded in construction in progress (Note 5(13)).

40. Assets impairment losses

2009 2008

Provision for impairment of accounts receivable and other receivables (Note 5(17)) 43,428,342 49,131,669 Provision for impairment of inventories (Note 5(7)) 1,070,665 3,853,238 Provision for impairment of construction in progress (Note 5(13)) 819,888,718 – Impairment provision for fair values of available-for-sale ﬁ nancial assets (Note 5(9)) 15,003,044 106,508,218

Total 879,390,769 159,493,125

41. Fair value losses

2009 2008

Derivative ﬁ nancial instruments – 52,983,938

160 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 42. Investment income

2009 2008

Investment income from long-term equity investments under equity method of accounting 110,264,186 215,707,167 Gain/(loss) arising from disposal of ﬁ nancial instruments 49,298,437 (151,658,433) Income arising from redemption of government bonds and other investment income – 25,618,169

Total 159,562,623 89,666,903

Th ere was no signiﬁ cant restriction on the remittance of the Group’s investment income from overseas as at the balance sheet date.

43. Non-operating income

2009 2008

Gains from ﬁ xed assets inspection and disposal of ﬁ xed assets 168,181 2,112,332 Insurance claims received 52,140,173 19,895,224 Government subsidies 6,489,526 24,258,570 Others 36,300,748 2,404,247

Total 95,098,628 48,670,373

44. Non-operating expenses

2009 2008

Losses from disposal of ﬁ xed assets 19,185,603 55,541,786 Charity donation 150,000 24,700,000 Others (note 1) 482,533,779 404,620

Total 501,869,382 80,646,406

note 1: Other non-operating expenses were mainly provided by the Group for certain claims and litigations. Since a more detailed disclosure might prejudice seriously the outcome of the litigation, the management did not make any further disclosure.

Annual Report 2009 161 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 45. Income tax expenses

2009 2008

Income tax expenses for the year 529,298,174 617,604,725 Income tax refund of prior years received during current year – (524,005,348) Deferred income tax 94,984,264 111,445,887

624,282,438 205,045,264

Th e relation between income tax expenses and proﬁ ts for the year is presented as follows:

2009 2008

Proﬁ t before tax 3,759,599,023 3,307,286,413

Tax at the statutory tax rate of 25% 939,899,756 826,821,603 Tax refund/reduction as an advanced technology enterprise (310,687,198) (220,793,287) Income tax reduction and refund – (524,005,348) Income not subject to tax (1,008,966,815) (145,376,583) Expenses not deductible for tax 556,154,971 40,993,864 Eff ect of diff erent tax rates for overseas subsidiaries (134,123,919) 63,164,875 Tax benefi t for qualifying research and development expense (28,761,121) (14,735,072) Unrecognised deductible losses – 464,172,797 Utilisation of previous unrecognised tax losses (475,416,439) – Translation adjustment(note1) 1,057,765,429 (311,387,575) Others 28,417,774 26,189,990

Income tax charge at the Group’s eﬀ ective tax rate 624,282,438 205,045,264

Th e Group’s income tax is calculated based on its estimated taxable income derived from the PRC and the applicable tax rate. Th e taxations sourced from other countries/regions’ taxable income are provided by reference to the respective applicable laws, interpretations and general practices as well as the applicable tax rates where the Group’s operations are domiciled and operated.

note 1: Translation adjustment includes tax eff ect of diff erences arising from foreign exchange eff ects to Norwegian Krone, which is the basis for taxation of some group companies. Th e translation adjustment mainly relates to diff erences between the taxable income under the Norwegian Krone tax basis and the US dollar functional currency income statement.

46. Earnings per share Th e basic earnings per share is calculated based on the net proﬁ t attributable to the ordinary equity holders of the Company in the current period and weighted average number of the ordinary shares in issue. Th e newly issued ordinary shares is included from the date that the considerations became receivable (normally the issuing date of shares), in accordance with the detailed issuing contractual terms set out in the contract.

Th e detailed calculation information for basic earnings per share is presented as follows:

2009 2008

Earnings Net proﬁ ts attributable to the ordinary equity holders of the Company 3,135,316,585 3,102,241,149

Shares Weighted average of ordinary shares issued by the Company 4,495,320,000 4,495,320,000

Th e Company does not have any potential diluted ordinary shares. 162 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 47. Other comprehensive income Other comprehensive income of the Group in 2009 and 2008 were diﬀ erences from translation of foreign currency statements.

48. Other cash paid relating to operating activities Including signiﬁ cant cash ﬂ ows listed as follows:

2009 2008

Domestic and overseas traveling expenses 179,851,939 173,758,454 Entertainment, oﬃ ce and conference expenses 110,513,129 104,883,920 Technical research transfer expenses 103,649,000 88,432,436 Fees paid to agent institutions 72,094,318 43,563,745 Greening, environmental protection and sewage charges 12,826,448 31,705,805 Quality security expenses 11,587,452 6,484,629 Information and system certiﬁ cation expenses 7,679,227 7,002,958 Others 74,224,962 215,547,925

Total 572,426,475 671,379,872

49. Cash ﬂ ows from operating activities

2009 2008

Reconciliation of net proﬁ t to cash ﬂ ows from operating activities:

Net profi t 3,135,316,585 3,102,241,149 Add: Provision for asset impairments 879,390,769 159,493,125 Change in fair value – 52,983,938 Depreciation of fi xed assets 2,331,609,328 1,282,367,194 Amortization of intangible assets 95,352,724 64,438,656 Provision of liabilities 467,583,617 – Amortization of long-term deferred expenses 438,204,056 216,728,697 Amortization/reversal of deferred revenue (1,113,501,709) (10,100,442) Net losses on disposal of fi xed assets, intangible assets and other long-term assets 19,017,422 53,429,454 Financial expenses 859,124,784 361,081,687 Investment income (159,562,623) (89,666,903) Increase in deferred income tax liabilities 93,657,278 111,445,887 Decrease in inventories (40,748,558) (288,301,945) Amount of non-operating income not related to operating activities (26,939,475) – Decrease in operating receivables (1,241,180,989) (1,579,670,527) Increase in operating payables (132,458,313) 600,191,900

Net amount of cash ﬂ ows from operating activities 5,604,864,896 4,036,661,870

Annual Report 2009 163 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated ﬁ nancial statements (continued) 50. Cash and cash equivalents

31 December 31 December 2009 2008

Cash 4,222,832,778 4,578,484,264 Including: Cash on hand 1,754,142 2,313,734 Unrestricted bank deposits 3,212,391,246 4,548,372,318 Unrestricted other monetary funds 457,522 13,148,000 Time deposits – –

Cash and cash equivalents at the end of the year 4,222,832,778 4,578,484,264

Less: Time deposits pledged (208,229,867) (14,650,212) Less: Non-pledged time deposits due aft er 3 months from the purchases (800,000,000) (268,346,000)

Cash and cash equivalents in the consolidated cash ﬂ ow statement 3,214,602,911 4,295,488,052

51. Business combination not under common control On 29 September 2008, the Company acquired a 98.8% equity interest of CDE through an indirectly controlled subsidiary established in Norway, COSL Norwegian AS, with a cash consideration of RMB15,913,195,784. According to the valuation report, the fair value of CDE’s net assets amounted to RMB12,621,989,073 on the date of the acquisition.

On 15 October 2008, COSL Norwegian AS exercised the mandatory oﬀ er clause acquiring the remaining 1.2% shares of CDE at the time of the closing of Norway Oslo Security Exchange, with an additional consideration equivalent to RMB181,033,794 paid in cash. Accordingly, the consideration for the acquisition of CDE amounted to RMB16,094,229,578 in total. On 23 October 2008, the shares acquired through the mandatory oﬀ er clause were transferred under the name of COSL Norwegian AS.

164 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB Yuan

5. Notes to the major items of the consolidated fi nancial statements (continued) 51. Business combination not under common control (continued) According to Accounting Standards for Business Enterprises No. 20 – Business Combinations, the Group initially allocated the above consideration to the fair value and carrying amount of the identifi able assets and liabilities of CDE on the date of acquisition on 28 September 2008. Th e allocation was restated based on the fi nal purchase price allocation results in 2009 as follows:

Adjustment of Preliminary allocation Finalised Carrying fair value of the fair value amount recognised acquisition price recognised

Cash on hand and at bank 447,196,648 447,196,648 – 447,196,648 Held-to-maturity investments 117,073,099 117,073,099 – 117,073,099 Held-for-trading ﬁ nancial assets 3,667,250 3,667,250 – 3,667,250 Accounts receivable 300,504,560 300,504,560 – 300,504,560 Other receivables 292,477,081 292,477,081 – 292,477,081 Inventories 78,655,909 78,655,909 – 78,655,909 Available-for-sale ﬁ nancial assets 140,366,447 140,366,447 – 140,366,447 Fixed assets 5,674,580,848 11,884,503,888 68,346,000 11,952,849,888 Construction in progress 8,057,526,116 13,814,490,042 (1,578,792,597) 12,235,697,445 Intangible assets – 253,033,931 – 253,033,931

Sub-total of assets 15,112,047,958 27,331,968,855 (1,510,446,597) 25,821,522,258

Accounts payable 166,384,712 166,384,712 – 166,384,712 Staﬀ cost payable 3,067,171 3,067,171 – 3,067,171 Taxes payables 105,646,927 105,646,927 – 105,646,927 Interests payable 165,604,207 165,604,207 – 165,604,207 Other payables 209,675,427 209,675,427 – 209,675,427 Current portion of non-current liabilities 1,040,456,069 1,040,456,069 – 1,040,456,069 Long-term bank borrowings 6,720,120,895 6,720,120,895 – 6,720,120,895 Long-term bonds 2,615,201,505 2,615,201,505 – 2,615,201,505 Deferred tax liabilities 244,074,712 2,116,870,809 (731,869,469) 1,385,001,340 Other non-current liabilities 47,848,457 1,566,952,060 345,666,732 1,912,618,792

Sub-total of liabilities 11,318,080,082 14,709,979,782 (386,202,737) 14,323,777,045

Net assets 3,793,967,876 12,621,989,073 (1,124,243,860) 11,497,745,213

Goodwill on acquisition (Note 5(15)) – 3,472,240,505 1,124,243,860 4,596,484,365

Cost of business combination – 16,094,229,578 – 16,094,229,578

Net cash ﬂ ows for the acquisition of the above subsidiary

Consideration for the acquisition of the subsidiary 16,094,229,578 Consideration paid in cash for the acquisition of the subsidiary 16,094,229,578 Less: Cash on hand and at bank at maintained by the subsidiary (447,196,648)

Net cash ﬂ ows for the acquisition of the subsidiary 15,647,032,930

Th e comparative fi gures of the consolidated fi nancial statements were restated based on the fi nalised purchase price allocation.

Annual Report 2009 165 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

5. Notes to the consolidated financial statements (continued) 52. Share appreciation rights plan On 22 November 2006, the Company’s share appreciation rights (“SAR”) plan for senior officers (the “SAR Plan”) was approved by the shareholders in the Second Extraordinary General Meeting of the year. The grant of the SAR with an exercise price of HK$4.09 per share, completed and became effective on 6 June 2007 when all the entitled senior officers agreed and signed individual performance contracts with the Company. SAR Plan was effective from 22 November 2006, and according to the plan, the exact number of share that the eligible senior officers will be entitled to is dependent on a number of performance targets that will be assessed two years after the effective date. The vesting period is two years and the senior officers can exercise their rights in four equal batches, beginning with year 3 (first exercisable date: the first trading day after 22 November 2008), 4, 5 and 6 from the approval date of the SAR Plan. The SAR Plan further provides that if the gain from exercising the SAR exceeds HK$0.99 per share, the excess gain should be calculated using the following percentage: 1. between HK$0.99 and HK$1.50, at 50%; 2. between HK$1.51 and HK$2.00, at 30%; 3. between HK$2.01 and HK$3.00, at 20%; and 4. HK$3.01 or above, at 15%. The total amounts paid in cash as a result of the Company’s share price being higher than the exercising price of SAR shall not exceed 10% of the profit of the year of the Group. The cash payment made in respect of the SAR must be deposited into the personal accounts of the eligible senior officers and not less than 20% of these payments should remain in the accounts until the recipient has completed his service terms. As at 31 December 2009, the details of the SAR granted to senior officers by the Company are as follows:

Shares Balance Volume granted at the Balance (shares in beginning Current year Current year at the end Position Name Thousand) of the year increase decrease of the year

Former Chief Executive Yuan Guangyu* 964.2 1,402,171 111,368 (233,734) 1,279,805 Offi cer and President President Li Yong 704.3 1,024,216 81,349 (170,731) 934,834 Executive Vice President Zhong Hua 704.3 1,024,216 81,349 (170,731) 934,834 and Chief Financial Offi cer Executive Vice President, Chen Weidong 704.3 1,024,216 81,349 (170,731) 934,834 Chief Strategy Offi cer and Secretary of Board of Directors Senior Vice President Li Xunke 656.9 955,285 75,875 (159,241) 871,919 Fomer Staff Supervisor Tang Daizhi ** 656.9 281,774 – – 281,774 Vice President Xu Xiongfei 609.1 885,772 70,353 (147,653) 808,472

5,000.0 6,597,650 501,643 (1,052,821) 6,046,472

* In 2009, Yuan Guangyu resigned as Chief Executive Oﬃ cer and President of the Company. According to the terms of the SAR Plan, he had completed the two years service period and all share appreciation rights granted have been fully vested. ** During 2007, Tang Daizhi resigned as a supervisor of the Company and joined CNOOC. According to the terms of the SAR Plan, he was entitled to his beneﬁ ts of SAR up to the date of his resignation. As at 31 December 2009, the staff cost payable in relation to the SAR Plan as recognized by the Company amounted to RMB6,046,472.

166 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions 1. Related parties A related party is a party which controls or in joint control of another party or gives its significant influence, or two or more parties which are controlled or in joint control of another party or under significant influence of another party. The following parties shall constitute related parties of the Group (1) Parent company of the Company; (2) Subsidiaries of the Company; (3) Other enterprises under the control of the same parent company in together with the Company; (4) The investor in joint control of the Company; (5) The investor exercising significant influence over the Company; (6) Jointly controlled entities of the Group; (7) Affiliated enterprises of the Group; (8) Major individual investor of the Company as well as his or her intimate family members; (9) Key managerial personnel of the Company or the parent company as well as his or her intimate family members; (10) The enterprises are controlled, jointly controlled or significantly influenced by major individual investors, key managerial personnel or their intimate family members of the Company. Enterprises under the control of the State but not subject to any other affiliated relationships shall not be considered as related parties. 2. Parent company and subsidiary

Share proportion Voting Parent Place of Business in the proportion in Registered Organization company name registration nature Company the Company capital code

CNOOC Beijing, PRC Exploration, 53.63% 53.63% RMB94,931,614,000 100001043 development, production and fabrication of ocean petroleum and natural gas

The Group’s subsidiaries are listed in Note 4 – Consolidation scope of Consolidated Financial Statement. The Group’s jointly-controlled Entities of the Company are listed in Note 5(10).

Annual Report 2009 167 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions (continued) 3. Other related parties Information on related parties conducting related transactions with the Group but without control relationship is provided as follows:

Company Affiliated Organization Name Relationship Code

CNOOC Limited Group Company under control of the same ultimate holding company Not applicable China Off shore Oil Int’l Engineering Company Company under control of the same ultimate holding company 100017547 Off shore Oil Engineering Co., Ltd. Company under control of the same ultimate holding company 722950227 CNOOC Finance Co., Ltd. Company under control of the same ultimate holding company 710929818 CNOOC Enterprises Company Company under control of the same ultimate holding company 101694419 CNOOC Research Center (note 1) Company under control of the same ultimate holding company 710926078 CNOOC Bohai Company (note 1) Company under control of the same ultimate holding company 103063338 CNOOC Nanhai West Corporation (note 1) Company under control of the same ultimate holding company 19034361X CNOOC Energy Technology & Services Ltd. (note 1) Company under control of the same ultimate holding company 771554423 CNOOC Hainan Petroleum Transportation Company under control of the same ultimate holding company 730065834 Service Co., Ltd. (note 1) China BlueChemical Ltd. (note 1) Company under control of the same ultimate holding company 721234704 China Ocean Oilfi elds Services (HK) Ltd. (note 1) Company under control of the same ultimate holding company 344000012 CNOOC Kingboard Chemical Ltd. (note 1) Company under control of the same ultimate holding company 754363393 Shenzhen Weisheng Ocean Petroleum Company under control of the same ultimate holding company 27926621-9 Technology Co., Ltd. (note 1) CNOOC Oil Refi nery and Petrochemical Company under control of the same ultimate holding company 66152344X Dongguan Oil Products Storage and Transportation Co., Ltd. (note 1) Bohai Material Supply Company (note 1) Company under control of the same ultimate holding company 103626049 Bohai Oil Harbor Engineering and Company under control of the same ultimate holding company 103624940 Construction Company (note 1) CNOOC Shenzhen National Gas Ltd. (note 1) Company under control of the same ultimate holding company 680356413 CNOOC Energy Technology & Services Ltd. Company under control of the same ultimate holding company 770641103 – Supervision and monitoring of technologies Branch (note 1) CNOOC Oil Refi nery and Petrochemical Co., Company under control of the same ultimate holding company 791011274 Ltd. – Sales Branch (note 1) CNOOC Asphalt Co. Ltd.(note 1) Company under control of the same ultimate holding company 706208970 CNOOC Hulu Dao Fine Chemicals Co., Ltd. (note 1) Company under control of the same ultimate holding company 791567408

note 1: Other CNOOC Group companies.

168 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions (continued) 4. Major transactions between the Group and related parties (1) Services provided to related parties

2009 2008 Percentage Percentage Amount (%) Amount (%)

Provision of drilling services CNOOC Limited Group 4,913,421,326 91% 3,321,950,060 97% Oﬀ shore Oil Engineering Co., Ltd. 6,325,412 – – – CNOOC 291,954,603 6% 94,999,381 3% CNOOC Energy Technology & Services Ltd. – Oilﬁ eld Construction Engineering Company – – 4,198,500 – Other CNOOC Group companies 4,716,994 – 10,551,899 – Jointly-controlled entities 172,528,724 3% 4,688,951 –

Subtotal 5,388,947,059 100% 3,436,388,791 100% Gross external revenue amount of provision of drilling services 10,135,321,629 6,038,878,560

Proportion in similar transactions 53% 57%

Provision of well services CNOOC Limited Group 3,432,382,620 96% 2,132,006,625 98% CNOOC 47,637,983 1% 14,065,327 1% Oﬀ shore Oil Engineering Co., Ltd. 68,589,686 2% – – Other CNOOC Group companies 20,065,876 1% 3,391,665 – Jointly-controlled entities 5,563,384 – 11,081,151 1%

Subtotal 3,574,239,549 100% 2,160,544,768 100% Gross external revenue amount of provision of well services 4,523,577,858 2,798,360,958

Proportion in similar transactions 79% 77%

Provision of marine support and transportation services CNOOC Limited Group 1,547,895,592 88% 1,141,586,066 83% Oﬀ shore Oil Engineering Co., Ltd. 114,259,877 6% 91,894,431 7% CNOOC 37,424,020 2% 9,435,738 1% CNOOC KaiShi Petrochemical Co., Ltd. 29,966,785 2% – – Bohai Material Supply Company – – 8,196,000 1% CNOOC Kingboard Chemical Ltd. – – 24,988,731 2% Shenzhen Weisheng Ocean Petroleum – – 7,840,381 1% Technology Co., Ltd. Other CNOOC Group companies 37,515,459 2% 75,493,010 5% Jointly-controlled entities 7,031,418 – 4,637,273 –

Subtotal 1,774,093,151 100% 1,364,071,630 100% Gross external revenue amount of provision of marine support and transportation services 2,239,378,199 1,665,446,658

Proportion in similar transactions 79% 82%

Annual Report 2009 169 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions (continued) 4. Major transactions between the Group and related parties (continued) (1) Services provided to related parties (continued)

2009 2008 Percentage Percentage Amount (%) Amount (%)

Provision of geophysical services CNOOC Limited Group 1,013,549,070 86% 1,013,630,433 88% Oﬀ shore Oil Engineering Co., Ltd. 129,923,031 11% 119,534,593 11% CNOOC Shenzhen National Gas Ltd. 10,451,797 1% – – CNOOC Research Center 13,600,000 1% – – Bohai Oil Harbor Engineering and Construction Company – – 33,000 – CNOOC Oil Reﬁ nery and Petrochemical Dongguan Oil Products Storage and – – 8,611,301 1% Transportation Co., Ltd. CNOOC 2,059,336 – 1,400,000 – Other CNOOC Group companies 2,800,849 1% 5,539,455 – Jointly-controlled entities 657,352 – 4,209,250 –

Subtotal 1,173,041,435 100% 1,152,958,032 100% Gross external revenue amount of provision of geophysical services 1,447,123,729 1,927,566,415

Proportion in similar transactions 81% 60%

(2) Services provided by related parties

2009 2008 Percentage Percentage Amount (%) Amount (%)

Oﬀ shore Oil Engineering Co., Ltd. 1,262,970,022 70% 107,990,877 22% Other CNOOC Group companies 428,818,282 24% 358,297,622 71% Jointly-controlled entities 110,921,891 6% 33,471,207 7%

Total 1,802,710,195 100% 499,759,706 100%

170 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions (continued) 4. Major transactions between the Group and related parties (continued) (3) Capital Loan from related parties

2009 Amount of Date of Loans Commencement Maturity Date Loans borrowed RMB

CNOOC Finance Co., Ltd. Loan 1 800,000,000 12 June 2009 10 June 2011 Loan 2 500,000,000 30 June 2009 29 June 2012

There was no capital loan between related parties in 2008. (4) Leases between related parties The Company concluded numerous agreements with CNOOC in the course of the Company’s reorganization, including arrangement of employee welfare, provision of materials, public facilities and supporting services, as well as provision of technology services, premises rental and other various commercial arrangements. The Group occupied certain properties for use owned by CNOOC free of charges prior to reorganization. In September 2002, the Company concluded numerous lease agreements with CNOOC on lease of the aforesaid properties and other properties for a period of one year. These lease agreements shall be renewed on an annual basis by reference to market price. The Company’s directors believe that all of the aforesaid transactions with related parties in (1) to (4) are conducted with reference to terms agreed by parties involved and effectuated in the normal course of business operation.

(5) Key managerial personnel remuneration

2009 2008 amount percentage (%) amount percentage (%)

Yuan Guangyu 235,470 5% 656,949 13% Liu Jian 362,954 7% - - Li Yong 528,923 10% 485,668 10% Zhong Hua 579,212 11% 538,082 11% Chen Weidong 629,698 12% 583,567 12% Dong Weiliang 700,917 13% 595,530 12% Li Xunke 564,070 11% 528,186 11% Xu Xiongfei 483,203 9% 447,882 9% Xiao Guoqing 565,269 11% 556,121 11% Yu Zhanhai 582,509 11% 541,181 11%

Total 5,232,225 100% 4,933,166 100%

Annual Report 2009 171 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions (continued) 5. Balance of receivables/(payables) from/(to) related parties Group

31 December 31 December 2009 2008

Accounts receivable CNOOC Limited Group 1,874,789,040 1,236,112,535 CNOOC 257,469,184 120,526,395 Oﬀ shore Oil Engineering Co., Ltd. 102,933,658 59,366,522 COSL-Expro 1,443,357 2,426,922 China France Bohai 502,894 76,659 CNOOC-OTIS 644,725 25,134 Magcobar 557,135 623,444 Fugro 12,768 1,875 Logging-Atlas 2,911,943 45,284 Atlantis Deepwater 80,022,467 – Others 32,255,222 17,892,944

2,353,542,393 1,437,097,714

172 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions (continued) 5. Balance of receivables/(payables) from/(to) related parties (continued) Group

31 December 31 December 2009 2008

Accounts payable CNOOC Limited Group 1,593,506 1,071,670 Bohai Material Supply Company 22,595,651 2,716,262 Oﬀ shore Oil Engineering Co., Ltd. 64,555,747 952,652 CNOOC Enterprises Company Yanjiao base branch 175,387 3,667,079 Magcobar 1,126,800 10,489,073 Fugro 5,417,087 8,332,671 China France Bohai 1,929,742 3,156,492 Logging-Atlas 23,442,814 26,786,115 Others 31,661,313 47,527,074

152,498,047 104,699,088

189,892,195 107,317,852

74,004,816 132,179,067

Annual Report 2009 173 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

6. Related party relationships and transactions (continued) 5. Balance of receivables/(payables) from/(to) related parties (continued) Group

31 December 31 December 2009 2008

Receipts in advance CNOOC Limited Group – 33,519,000

Prepayments CNOOC Energy Technology & Services Ltd. – 24,600,000 – Oilﬁ eld Construction Engineering Company Oﬀ shore Oil Engineering Co., Ltd. 298,097,500 259,724,275

298,097,500 284,324,275

Notes receivable CNOOC Limited Group 427,107,943 338,269,985

Notes payable Oﬀ shore Oil Engineering Co., Ltd. – 366,762,500

Accounts of the Group and the Company receivable or payable to related parties are free of interest, unsecured and have no fixed repayment term. 6. Cash on hand and at bank placed in related parties Group

31 December 31 December 2009 2008

CNOOC Finance Co., Ltd. 541,962,050 539,821,006

7. Other Disclosures All the Group’s full-time employees in Mainland China are covered by a government-regulated pension scheme, and are entitled to receive pensions determined by their basic salaries upon their retirement. The PRC government is responsible for the pension liabilities to these retired employees. The Group is required to make annual contributions to the government-regulated pension at a fixed proportion of the employees’ basic salaries. The related pension charges are expensed as incurred. CNOOC and the Group agree that following the reorganization and public listing overseas in 2002, CNOOC will continue to bear the supplementary pension benefits of the Group’s retired employees as well as the supplementary pension benefits of the Group’s existing employees attributable to the period prior to the Group’s public listing overseas. Given that cost for the aforesaid supplementary pension benefits will continue to be borne by CNOOC in full, such costs have not been recorded in the Group’s financial statements for the year. The supplementary pension benefits borne by CNOOC for the year was RMB21,027,004 (2008: RMB37,502,947). Following reorganization and public listing, except for the pension to be paid by the Group as per relevant regulations as specified by the government, the Group shall not be liable for any welfare expenses for existing employees after their retirement.

174 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

7. Material litigations In January 2007, Awilco Offshore ASA made a compulsory acquisition of the outstanding shares in Off Rig Drilling ASA (“OFRD”). The acquisition was made in accordance with 4-25 of the Norwegian Public Limited Companies Act. Certain minority shareholders owning an aggregate of 8.8% in OFRD disagreed with the price paid per share. In 2009, an appraisement where the redemption price for the shares was set at a price higher than the acquisition price was made by the court. COSL Drilling Europe AS has filed a petition for a second appraisement by a higher court and the proceedings will start in 2010. The detailed information is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation. The Management is of the opinion that the possible cash outflow causing by the above-mentioned litigation will not have significant adverse effect on the financial position of the Group.

8. Contingency During the year 2009, two subsidiaries of the Group received notification from the local tax authorities requesting information on the valuation basis used by the company for the transfer of certain construction contracts and options to entities within the Group, and indicating its intent to consider additional assessment. If the basis indicated by the tax authorities is adopted, the tax liability relating to the transfers could increase substantially for both companies. The Directors will defend vigorously against any additional assessment by the tax authorities. Considering the uncertainties relating to the final outcome of both the final assessment amount and the timing of the cash outflows, if any, the Directors have not made any provision for any amount arising from the above-mentioned tax contingency in these financial statements. As disclosed in Note 7 above and matter mentioned in this note, there are no other discloseable contingent matters of the Group as at the balance sheet date.

9. Commitments The Group has the following commitments as at the balance sheet date:

31 December 31 December 2009 2008

Contracted, but not provided for 12,556,797,442 6,384,560,345 Authorised, but not contracted for 7,671,765,368 18,990,186,807

Total 20,228,562,810 25,374,747,152

Annual Report 2009 175 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events 1. Business Combination CDE was acquired through the Company’s wholly owned subsidiary and established in Norway, COSL Norwegian AS in September 2008 as further described in Note 5(51). 2. Leases Major Operating Leases – the Group as lessee According to the lease contracts concluded with the lessers, the minimum amount of lease payment for irrevocable lease of the Group is stated as follows:

31 December 31 December 2009 2008

Within 1 year (including 1 year) 139,337,962 127,419,741 1-2 years (including 2 years) 119,048,805 112,031,386 2-3 years (including 3 years) 55,564,058 109,357,185 Over 3 years 46,955,987 82,776,020

Total 360,906,812 431,584,332

Major Operating Leases – the Group as lesser

According to the lease contracts concluded with the lessees, the future minimum rental receivable for irrevocable lease in 2009 is stated as follows:

31 December 31 December 2009 2008

Within 1 year (including 1 year) 170,482,631 170,482,631 1-2 years (including 2 years) 113,655,087 170,482,631 2-3 years (including 3 years) – 113,655,087

Total 284,137,718 454,620,349

176 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 3. Assets and liabilities measured as at fair value

Aggregated Balance Fair value fair value Impairment at the change change provision Balance at beginning during included during Exchange the end 2009 of the year the year in equity the year realignment of he year

Available-for-sale ﬁ nancial assets 34,317,535 – – (15,003,044) (33,457) 19,281,034

Balance Aggregated at the Fair value fair value Impairment beginning change change provision Balance at of the year during included during Exchange the end 2008 (Note 1) the year in equity the year realignment of he year

Available-for-sale ﬁ nancial assets 140,366,447 – – (106,508,218) 459,306 34,317,535

Held-for-trading ﬁ nancial assets/liabilities 3,667,250 (52,983,938) – – 8,767 (49,307,921)

note: Th e Group’s available-for-sale ﬁ nancial assets represents an investment in Petrojack ASA made by CDE (CDE was acquired by the Company on 28 September 2008). Th us, the balance at the beginning of the period in 2008 was the balance as at 30 September 2008. 4. Foreign currency financial assets and financial liabilities Foreign currency financial assets (in RMB)

Aggregated Balance Fair value fair value Impairment at the change change provision Balance at beginning during included during the end 2009 of the year the year in equity the year of he year

Current Assets: Cash on hand and at bank 1,921,807,940 – – – 2,359,608,734 Notes receivable – – – – – Accounts receivable 1,284,237,440 – – (4,459,793) 1,358,413,142 Interest receivable – – – – – Dividend receivable 16,391,075 – – – 10,754,415 Other receivables 191,047,858 – – (334,147) 332,208,903 Current portion of non-current assets 39,117,655 – – – 39,081,032 Non-current Assets: Available-for-sale ﬁ nancial assets 34,317,535 – – – 19,281,034 Held-to-maturity investment 78,235,318 – – – 531,735,085

Total ﬁ nancial assets 3,565,154,821 – – (4,793,940) 4,651,082,345

Annual Report 2009 177 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 4. Foreign currency financial assets and financial liabilities (continued) Foreign currency financial liabilities (in RMB)

Aggregated Balance Fair value fair value Impairment at the change change provision Balance at beginning during included during the end 2009 of the year the year in equity the year of he year

Current Liabilities: Short-term bank borrowings 6,835,596,924 – – – – Notes payable – – – – – Accounts payable 709,429,228 – – – 651,471,495 Interests payable 326,243,662 – – – 137,667,449 Other payables 535,175,747 – – – 200,294,610 Current portion of non-current liabilities 699,020,215 – – – 39,081,032 Non-current Liabilities: Derivate ﬁ nancial instruments 49,307,921 – – – – Long-term bank borrowings 15,211,446,023 – – – 25,784,120,975 Long-term bonds 2,528,341,874 – – – 1,170,019,752

Total ﬁ nancial liabilities 26,894,561,594 – – – 27,982,655,313

Foreign currency financial assets (in RMB)

Aggregated Balance Fair value fair value Impairment at the change change provision Balance at beginning during included during the end 2008 of the year the year in equity the year of he year

Current Assets: Cash on hand and at bank 1,016,998,967 – – – 1,921,807,940 Notes receivable – – – – – Accounts receivable 375,987,856 – – (609,280) 1,284,237,440 Interest receivable 109,463 – – – – Dividend receivable 21,287,114 – – – 16,391,075 Other receivables 76,500,258 – – (88,089) 191,047,858 Current portion of non-current assets – – – – 39,117,655 Non-current Assets: Available-for-sale ﬁ nancial assets 140,366,447 – – (106,048,912) 34,317,535 Held-to-maturity investment – – – – 78,235,318

Total ﬁ nancial assets 1,631,250,105 – – (106,746,281) 3,565,154,821

178 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 4. Foreign currency financial assets and financial liabilities (continued) Foreign currency financial liabilities (in RMB)

Aggregated Balance Fair value fair value Impairment at the change change provision Balance at beginning during included during the end 2008 of the year the year in equity the year of he year

Current Liabilities Short-term bank borrowings – – – – 6,835,596,924 Notes payable – – – – – Accounts payable 241,163,658 – – – 709,429,228 Interests payable 42,000,000 – – – 326,243,662 Other payables 134,600,659 – – – 535,175,747 Current portion of – – – – 699,020,215 non-current liabilities Non-current Liabilities: Derivate ﬁ nancial instruments (3,667,250) 52,975,171 – – 49,307,921 Long-term bank borrowings – – – – 15,211,446,023 Long-term bonds – – – – 2,528,341,874

Total ﬁ nancial liabilities 414,097,067 52,975,171 – – 26,894,561,594

5. Segment reporting Operation Segments For management purposes, the Group is organised into business units based on their services and has four reportable operating segments as follows: (a) the drilling services segment is engaged in the provision of oilfield drilling services; (b) the well services segment is engaged in the provision of logging and downhole services, such as drilling fluids, directional drilling, cementing and well completion, sales of well chemical materials and well workovers; (c) the geophysical services segment is engaged in the provision of offshore seismic data collection, marine surveying and data processing services; and (d) the marine support and transportation services segment is engaged in the transportation of materials, supplies and personnel to offshore facilities, moving and positioning drilling structures, the transportation of crude oil and refined products and the transportation of methanol or other petrochemical products. Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit, which is a measure of adjusted profit before tax from continuing operations. The adjusted profit before tax from continuing operations is measured consistently with the Group’s profit before tax from continuing operations except that interest income, finance costs, and exchange gains/(losses) are excluded from such measurement. Segment assets exclude certain cash and cash equivalents (funds managed by the corporate treasury), dividend receivable, interest receivable and other receivables as these assets are managed on a group basis. Segment liabilities exclude certain other payables, interest-bearing bank borrowings and long term bonds (funds managed by the corporate treasury) as these liabilities are managed on a group basis. Funds managed by the CNA group treasury were included in the drilling services segment. As such, the related cash and cash equivalents, interest-bearing bank borrowings and long term bonds were included in the drilling services segment. Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

Annual Report 2009 179 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 5. Segment reporting (continued) Operation Segments (continued) The Group’s revenue, operating costs, business taxes and surcharges and operating profit by business segments are set out as follows:

Marine support and Drilling Well Geophysical transportation 2009 services services services services Total

Revenue External revenue 10,135,321,629 4,523,577,858 1,447,123,729 2,239,378,199 18,345,401,415 Inter-segment revenue 1,249,654,715 144,598,904 50,230,929 59,087,711 1,503,572,259

11,384,976,344 4,668,176,762 1,497,354,658 2,298,465,910 19,848,973,674

Operating results Including: Segmental proﬁ t 4,037,050,675 766,029,471 296,213,364 654,966,177 5,754,259,687 Unallocated proﬁ t – – – – (1,587,889,910)

4,037,050,675 766,029,471 296,213,364 654,966,177 4,166,369,777

Total assets Segment assets 45,391,863,126 4,922,991,523 2,453,279,199 5,074,158,505 57,842,292,353 Unallocated assets 3,091,044,192

Subtotal 60,933,336,545

Total liabilities Segment liabilities 6,077,720,387 1,477,788,982 230,143,597 538,668,928 8,324,321,894 Unallocated liabilities 30,303,410,006

Subtotal 38,627,731,900

Other disclosures Capital expenditure 6,062,823,469 760,091,795 665,704,228 924,718,780 8,413,338,272

Depreciation of property, plant and equipment and amortization of intangible assets 1,945,677,805 406,354,277 238,038,012 275,096,016 2,865,166,110

Assets impairment losses 859,476,220 10,972,490 3,510,174 5,431,885 879,390,769

Realized gain of derivative instruments 49,298,437 – – – 49,298,437

180 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 5. Segment reporting (continued) Operation Segments (continued)

Marine support and Drilling Well Geophysical transportation 2008 services services services services Total

Revenue External revenue 6,038,878,560 2,798,360,958 1,927,566,415 1,665,446,658 12,430,252,591 Inter-segment revenue 729,604,638 133,410,620 303,555,889 67,153,268 1,233,724,415

6,768,483,198 2,931,771,578 2,231,122,304 1,732,599,926 13,663,977,006

Operating results Including: Segmental proﬁ t 2,232,694,029 464,570,230 638,418,292 492,495,979 3,828,178,530 Unallocated proﬁ t – – – – (488,916,084)

2,232,694,029 464,570,230 638,418,292 492,495,979 3,339,262,446

Total assets Segment assets 41,943,395,758 4,098,756,602 1,879,398,806 4,433,891,856 52,355,443,022 Unallocated assets 3,917,472,863

Subtotal 56,272,915,885

Total liabilities Segment liabilities 25,996,430,901 1,293,334,934 417,863,687 324,363,762 28,031,993,284 Unallocated liabilities 8,443,078,441

Subtotal 36,475,071,725

Other disclosures Capital expenditure 3,754,649,184 1,287,256,033 503,873,066 1,291,971,706 6,837,749,989

Depreciation of property, plant and equipment and amortization of intangible assets 913,558,126 262,287,887 194,845,169 192,843,365 1,563,534,547

Assets impairment losses 109,311,326 1,319,134 48,080,360 782,305 159,493,125

Fair value losses on derivative instruments 52,983,938 – – – 52,983,938

Realized losses of derivative instruments 151,658,433 – – – 151,658,433

Annual Report 2009 181 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 5. Segment reporting (continued) Group Geographical Information The Group mainly engages in the provision of drilling services, well services, marine support and transportation services and geophysical services in offshore China. Activities outside the PRC are mainly conducted in Indonesia, Australia, Mexico, Myanmar, Norway, Vietnam, Saudi Arabia, Dubai, Libya and Tunisia. In determining the Group’s geographical information, revenues and results are attributed to the segments based on the location of the Group’s customers. No further analysis of geographical information is presented for revenues as revenues generated from customers in other locations are individually less than 10%, and approximately 72% of the Group’s revenues are generated from customers in Mainland China.

External revenue 2009 2008

Domestic 13,356,398,375 9,386,849,237 Overseas 4,989,003,040 3,043,403,354

Total 18,345,401,415 12,430,252,591

External revenue are attributable to the locations where the Group’s customers are located. A signiﬁ cant portion of the non-current assets are property, plant and equipment with high mobility which may have moved from Mainland China to foreign countries during the year and vice versa. As such, the necessary information is not available for the analysis of geographical segment for non-current assets. Major customers segments Details of revenue from major customers (including all entities under such customers) are set out in Note 6(4).

182 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 6. Financial instruments and related risks The Group’s principal financial instruments, other than derivatives, comprise bank borrowings, long-term bonds, cash on hand and at bank and available-for-sale financial assets. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities directly arising from operations such as accounts receivable and accounts payable. The Group also enters into derivative transactions, including principally interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. During the year, the Group adopts a policy to forbid any derivative transactions conducted for speculation purpose. The main risks arising from the Group’s financial instruments are credit risk, liquidity risk and market risk. Financial instruments by category The carrying amount of each of the categories of financial instruments of the Group as at the balance sheet date is as follows:

Financial assets

Held-to-maturity Loans and Available-for-sale 2009 investment receivables financial assets Total

Current assets: Cash on hand and at bank – 4,222,832,778 – 4,222,832,778 Notes receivable – 429,657,902 – 429,657,902 Accounts receivable – 3,745,547,364 – 3,745,547,364 Interest receivable – 1,080,000 – 1,080,000 Dividend receivable – 23,754,415 – 23,754,415 Other receivables – 389,123,571 – 389,123,571 Current portion of non-current assets 39,081,032 – – 39,081,032

Non-current assets: Available-for-sale ﬁ nancial assets – – 19,281,034 19,281,034 Held-to-maturity investments 39,081,025 – – 39,081,025

Total ﬁ nancial assets 78,162,057 8,811,996,030 19,281,034 8,909,439,121

Held-to-maturity Loans and Available-for-sale 2008 investment receivables financial assets Total

Current assets: Cash on hand and at bank – 4,578,484,264 – 4,578,484,264 Notes receivable – 354,869,985 – 354,869,985 Accounts receivable – 2,735,024,686 – 2,735,024,686 Interest receivable – 4,342,362 – 4,342,362 Dividend receivable – 16,391,075 – 16,391,075 Other receivables – 306,469,550 – 306,469,550 Current portion of non-current assets 39,117,655 – – 39,117,655

Non-current assets: Available-for-sale ﬁ nancial assets – – 34,317,535 34,317,535 Held-to-maturity investments 78,235,318 – – 78,235,318

Total ﬁ nancial assets 117,352,973 7,995,581,922 34,317,535 8,147,252,430

Annual Report 2009 183 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 6. Financial instruments and related risks (continued) Financial instruments by category (continued) Financial liabilities

Financial liabilities accounted for at fair value and the changes in fair value recognized Other 2009 into consolidated income statement financial liabilities Total

Short-term bank borrowings – – – Notes payable – – – Accounts payable – 3,175,095,974 3,175,095,974 Interests payable – 139,212,858 139,212,858 Other payables – 358,827,721 358,827,721 Current portion of non-current liabilities – 283,081,032 283,081,032 Derivative ﬁ nancial instruments – – – Long-term bank borrowings – 28,151,039,943 28,151,039,943 Long-term bonds – 2,670,019,752 2,670,019,752

Total ﬁ nancial liabilities – 34,777,277,280 34,777,277,280

Financial liabilities accounted for at fair value and the changes in fair value recognized Other 2008 into consolidated income statement financial liabilities Total

Short-term bank borrowings – 6,835,596,924 6,835,596,924 Notes payable – 366,762,500 366,762,500 Accounts payable – 2,376,732,369 2,376,732,369 Interests payable – 327,961,642 327,961,642 Other payables – 636,027,209 636,027,209 Current portion of non-current liabilities – 943,020,215 943,020,215 Derivative ﬁ nancial instruments 49,307,921 – 49,307,921 Long-term bank borrowings – 16,355,446,023 16,355,446,023 Long-term bonds – 4,028,341,874 4,028,341,874

Total ﬁ nancial liabilities 49,307,921 31,869,888,756 31,919,196,677

184 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 6. Financial instruments and related risks (continued) Credit risk Credit risk represents the risk that one party of financial instruments fails to fulfill its obligation, resulting in the financial loss of the counterparty. The Group trades only with recognized and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions denominated in currencies other than the functional currency of the related entity, no credit term is provided except for any specific approval received from the Group’s credit control department. The Group’s other financial assets mainly comprise cash on hand and at bank, available-for-sale financial assets and other receivables. The credit risk of these assets arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Since the Group trades only with recognized and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer. The Group’s accounts receivable do not have other concentration credit risk except those amounts due from CNOOC Limited and amounts due from other companies controlled by CNOOC. The Group’s largest customer is CNOOC Limited, of which the information of relevant accounts receivable is disclosed in Note 6(5) and Note 5(3), together with the receivables due from the Group’s top 5 customers. As at 31 December 2008 and 31 December 2009, the Group does not have any significant accounts receivable or other financial assets past due but not impaired. Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. Please refer to Note 5(3) & (6) for the quantitative data for the Group’s credit risk exposure in relation to the accounts receivable and other receivables.

Liquidity risk Liquidity risk represents the risk that an entity encounters difficulty in meeting obligations associated with financial liabilities. The Group’s objective is to maintain a balance between continuity of funding and flexibility through long-term bonds and bank borrowings. 3% (2008: 32%) of the Group’s debts will mature within one year as at 31 December 2009. The Group’s strategy is to maintain a balance between continuing of funding and flexibility through both short-term and long- term financing activities (including short-term borrowings, long-term bank borrowings together with the issuance of bonds). The maturity profile of the Group’s financial assets and liabilities, based on the contracted undiscounted payments, is as follows:

2009

Financial assets Within one year One to two years Over two years Total

Cash on hand and at bank 4,222,832,778 – – 4,222,832,778 Notes receivable 429,657,902 – – 429,657,902 Accounts receivable 3,745,547,364 – – 3,745,547,364 Interest receivable 1,080,000 – – 1,080,000 Dividend receivable 23,754,415 – – 23,754,415 Other receivables 389,123,571 – – 389,123,571 Current portion of non-current assets 39,081,032 – – 39,081,032 Available-for-sale ﬁ nancial assets 19,281,034 – – 19,281,034 Held-to-maturity investments – 39,081,025 – 39,081,025

8,870,358,096 39,081,025 – 8,909,439,121

Annual Report 2009 185 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 6. Financial instruments and related risks (continued) Liquidity risk (continued)

Within One to two Two to five Over five Financial liabilities one year years years years Total

Accounts payable 3,175,093,974 – – – 3,175,095,974 Interests payable 139,212,858 – – – 139,212,858 Other payables 358,827,721 – – – 358,827,721 Current portion of non- current liabilities 828,748,415 – – – 828,748,415 Long-term bank borrowings – 1,936,526,602 8,969,637,781 19,402,099,581 30,308,263,964 Long-term bonds – 1,171,036,300 – 1,500,000,000 2,671,036,300

4,501,884,968 3,107,562,902 8,969,637,781 20,902,099,581 37,481,185,232

2008

Within one One to two Over two Financial assets year years years Total

Cash on hand and at bank 4,578,484,264 – – 4,578,484,264 Notes receivable 354,869,985 – – 354,869,985 Accounts receivable 2,735,024,686 – – 2,735,024,686 Interest receivable 4,342,362 – – 4,342,362 Dividend receivable 16,391,075 – – 16,391,075 Other receivables 306,469,550 – – 306,469,550 Available-for-sale ﬁ nancial assets 34,317,535 – – 34,317,535 Current portion of non-current assets 39,117,655 – – 39,117,655 Held-to-maturity investments – 39,117,659 39,117,659 78,235,318

8,069,017,112 39,117,659 39,117,659 8,147,252,430

186 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 6. Financial instruments and related risks (continued) Liquidity risk (continued)

Within One to two Two to five Over five Financial liabilities one year years years years Total

Short-term bank borrowings 6,835,596,924 – – – 6,835,596,924 Notes payable 366,762,500 – – – 366,762,500 Accounts payable 2,376,732,369 – – – 2,376,732,369 Interests payable 327,961,642 – – – 327,961,642 Other payables 636,027,209 – – – 636,027,209 Current portion of non- current liabilities 1,521,687,832 – – – 1,521,687,832 Derivate ﬁ nancial instruments 49,307,921 – – – 49,307,921 Long-term bank borrowings – 9,865,110,863 3,017,812,207 4,631,127,749 17,514,050,819 Long-term bonds – 488,150,000 2,050,380,000 1,500,000,000 4,038,530,000

12,114,076,397 10,353,260,863 5,068,192,207 6,131,127,749 33,666,657,216

Market risk Market risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate with changes in market price. Market risk principally comprises interest rate risk and foreign currency risk. Interest rate risk Interest rate risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate with changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with a floating interest rate. The Group’s policy is to manage its interest cost using a mix of its fixed and floating rate debts. Moreover, based on analysis of the development of interest rate market, the Group enters into various contracts (including interest rate swap contract) to minimize the risk associated with its floating interest debts. The table below shows the sensitivity analysis of interest rate, which reflects, with other variables held constant and when the interest rate changes in a reasonable and probable basis, the relevant effect to profit before tax (through effect on floating interest borrowings) and shareholders’ equity.

Annual Report 2009 187 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 6. Financial instruments and related risks (continued) Interest rate risk (continued)

Basic point Profit before tax Shareholders’ equity 2009 increase/(decrease) increase/(decrease) increase/(decrease)*

RMB and US$ (50) 70,697,892 60,093,208 50 (70,697,892) (60,093,208)

Basic point Profit before tax Shareholders’ equity 2008 increase/(decrease) increase/(decrease) increase/(decrease)*

RMB and US$ (50) 26,600,000 21,154,000 50 (26,600,000) (21,154,000)

* Excluding retained earnings.

Foreign currency risk Foreign currency risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate with changes in foreign exchange rates. With the majority of the Group’s businesses transacted in RMB, the aforesaid currency is defined as the Group’s functional currency. RMB is not freely convertible into foreign currencies and conversion of RMB into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. The Group’s significant business operations are in Mainland China, and its revenue and expenses are mainly denominated in the RMB. The effect of the fluctuations in the exchange rate of RMB against foreign currencies arising from this aspect on the Group’s results of operations is therefore not expected to be significant and the Group has not entered into any hedging transactions in order to reduce the Group’s exposure to foreign currency risk in this regard. However, the Group is exposed to foreign currency risk as the Group had obtained debts denominated in US dollars. The table below shows the sensitivity analysis of foreign exchange risk, which reflects, with other variables held constant and when exchange rate of US$ changes in a reasonable and probable basis, the relevant effect to profit before tax and shareholders’ equity.

Exchange rate of US$ Profit before tax Shareholders’ equity 2009 increase/(decrease) increase/(decrease) increase/(decrease)*

RMB appreciates against US$ 5% 1,249,091,538 942,133,851 RMB depreciates against US$ (5%) (1,249,091,538) (942,133,851)

Exchange rate of US$ Profit before tax Shareholders’ equity 2008 increase/(decrease) increase/(decrease) increase/(decrease)*

RMB appreciates against US$ 5% 255,000,000 216,750,000 RMB depreciates against US$ (5%) (255,000,000) (216,750,000)

* Excluding retained earnings.

188 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

10. Other significant events (continued) 6. Financial instruments and related risks (continued) Fair value The carrying amount and fair value of the Group’s financial instruments are as follows:

31 December 2009 31 December 2008 Financial assets Carrying amount Fair value Carrying amount Fair value

Current assets: Cash on hand and at bank 4,222,832,778 4,222,832,778 4,578,484,264 4,578,484,264 Notes receivable 429,657,902 429,657,902 354,869,985 354,869,985 Accounts receivable 3,745,547,364 3,745,547,364 2,735,024,686 2,735,024,686 Interest receivable 1,080,000 1,080,000 4,342,362 4,342,362 Dividend receivable 23,754,415 23,754,415 16,391,075 16,391,075 Other receivables 389,123,571 389,123,571 306,469,550 306,469,550 Available-for-sale ﬁ nancial assets – – – – Current portion of non-current assets 39,081,032 39,081,032 39,117,655 39,117,655

Non-current assets: Available-for-sale ﬁ nancial assets 19,281,034 19,281,034 34,317,535 34,317,535 Held-to-maturity investments 39,081,025 39,081,025 78,235,318 78,235,318

Financial liabilities Short-term bank borrowings – – 6,835,596,924 6,835,596,924 Notes payable – – 366,762,500 366,762,500 Accounts payable 3,175,095,974 3,175,095,974 2,376,732,369 2,376,732,369 Interests payable 139,212,858 139,212,858 327,961,642 327,961,642 Other payables 358,827,721 358,827,721 636,027,209 636,027,209 Current portion of non-current liabilities 283,081,032 283,081,032 943,020,215 943,020,215 Derivate Financial Instruments – – 49,307,921 49,307,921 Long-term bank borrowings 28,151,039,943 28,056,182,323 16,355,446,023 16,355,446,023 Long-term bonds (note 1) 2,670,019,752 2,665,060,487 4,028,341,874 3,384,366,500

note 1: Th e fair value of long-term bonds as at 31 December 2009 is determined by reference to market price.

7. Comparative Data Certain comparative figures have been re-presented to conform to the current year’s presentation. As stated in Note 5(51), in 2009, the Group made retrospective adjustments to purchase price allocation for acquisition of CDE based on final evaluation results. The comparative data was adjusted accordingly based on the determined purchase price allocation.

Annual Report 2009 189 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

11. Notes to the major items of the financial statements of the company

1. Accounts receivable

31 December 31 December 2009 2008

Accounts receivable 4,282,170,580 3,366,681,979 Less: provision for impairment of accounts receivable 85,107,504 50,073,295

4,197,063,076 3,316,608,684

The ageing analysis of accounts receivable is as follows:

31 December 2009 31 December 2008 Provision for Provision for impairment impairment of accounts Provision of accounts Provision Amount Ratio receivable ratio Amount Ratio receivable ratio

Within 1 year 4,267,417,376 100% 80,022,440 2% 3,364,184,576 100% 48,723,771 1% 1-2 years 13,699,629 – 4,109,890 30% 1,639,828 – 491,949 30% 2-3 years 196,000 – 117,600 60% – – – – Over 3 years 857,575 – 857,574 100% 857,575 – 857,575 100%

Total 4,282,170,580 100% 85,107,504 3,366,681,979 100% 50,073,295

31 December 2009 31 December 2008 Provision for Provision for impairment impairment of accounts Provision of accounts Provision Amount Ratio receivable ratio Amount Ratio receivable ratio

Items with signiﬁ cance 3,858,490,631 90% 80,022,440 2% 3,106,927,120 92% – – Other insigniﬁ cant items 423,679,949 10% 5,085,064 1% 259,754,859 8% 50,073,295 19%

Total 4,282,170,580 100% 85,107,504 3,366,681,979 100% 50,073,295

190 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

11. Notes to the major items of the financial statements of the company (continued)

1. Accounts receivable (continued) Provision for impairment of accounts receivable is analyzed below:

31 December 31 December 2009 2008

Balance at the beginning of the year 50,073,295 1,339,921 Provision during the year 84,360,707 49,215,720 Written-back during the year (49,326,498) (482,346)

Balance at the end of the year 85,107,504 50,073,295

As at each end of the financial reporting date, the accounts receivable due from the Company’s related parties are not overdue (including the amounts due from jointly-controlled entities and other related parties), thus no bad debt provision is made for such accounts.

31 December 31 December 2009 2008

Total for top 5 debtors 2,933,743,139 2,452,653,603

Ratio to total accounts receivable 69% 73% Ageing Within 1 year Within 1 year

The accounts receivable balance as at 31 December 2009 includes an amount of RMB257,469,184 (31 December 2008: RMB120,526,395) due from CNOOC, a shareholder holding 53.63% voting rights of the Company. As at 31 December 2009, the Company’s accounts receivable denominated in US$ was US$262,541,958 (RMB1,792,688,996) (31 December 2008: the balance denominated in US$ was US$271,974,040, (RMB1,858,833,775)).

2. Other receivables

31 December 31 December 2009 2008

Other receivables 972,364,735 530,680,232 Less: Provision for impairment of other receivables 7,331,282 2,787,662

965,033,453 527,892,570

Annual Report 2009 191 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

11. Notes to the major items of the financial statements of the company (continued)

2. Other receivables (continued) The ageing of other receivable is analyzed below:

31 December 2009 31 December 2008 Provision for Provision for impairment impairment of other Provision of other Provision Amount Ratio receivables ratio Amount Ratio receivables ratio

Within 1 year 953,299,988 98% – – 526,523,535 100% – – 1-2 years 16,185,701 2% 4,855,710 30% 1,427,553 – 427,345 30% 2-3 years 1,008,685 – 605,211 60% 922,069 – 553,242 60% Over 3 years 1,870,361 – 1,870,361 100% 1,807,075 – 1,807,075 100%

Total 972,364,735 100% 7,331,282 530,680,232 100% 2,787,662

Items with signiﬁ cance 841,136,910 87% – – 412,220,747 78% – – Other insigniﬁ cant items 131,227,825 13% 7,331,282 6% 118,459,485 22% 2,787,662 2%

Total 972,364,735 100% 7,331,282 530,680,232 100% 2,787,662

Provision for impairment of other receivables is analyzed below:

31 December 31 December 2009 2008

Balance at the beginning of the year 2,787,662 2,389,367 Provision during the year 8,269,455 728,141 Written-back during the year (3,725,835) (329,846)

Balance at the end of the year 7,331,282 2,787,662

The other receivable balance as at 31 December 2009 include an amount of RMB1,983,532 (31 December 2008: RMB2,299,741) due from CNOOC, mainly for the expenses of the internally retired persons and supplementary pension insurance as undertaken by CNOOC. Except for the above, there is no balance due from any shareholder holding 5% or more voting shares. As at each end of the financial reporting date, in items of inter company receivables (including jointly controlled entities and other related parties), there has been no balances over due, thus no bad debt provision is made for such accounts.

31 December 31 December 2009 2008

Total for top 5 debtors 799,690,430 412,220,747

Ratio to the total other receivables 82% 78% Ageing Within 1 year Within 1 year

192 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

11. Notes to the major items of the financial statements of the company (continued) 3. Long-term equity investments

31 December 31 December 2009 2008

Cost method 6,852,512,432 6,841,087,548 Equity method 378,645,225 375,488,629

7,231,157,657 7,216,576,177

Increase/ Cash Initial Balance at the (decrease) Balance at the dividends investment beginning of during end of the Voting right Impairment during the 2009 costs the year the year year Shareholding ratio (%) ratio (%) provision year Direct Indirect

Equity method: Jointly-controlled entities China France Bohai 56,336,656 85,573,661 (14,255,694) 71,317,967 50% – 50% – (63,536,010) Magcobar 25,170,585 130,043,359 6,524 130,049,883 60% – 50% – (57,392,160) CNOOC-OTIS 27,520,607 33,384,495 (5,035,349) 28,349,146 50% – 50% – (10,200,000) Logging-Atlas 10,167,012 20,771,163 487,821 21,258,984 50% – 50% – (5,124,300) Fugro 10,134,627 42,155,083 24,666,158 66,821,241 50% – 50% – (9,713,937) COSL-Expro 19,352,250 63,560,868 (2,712,864) 60,848,004 50% – 50% – (38,500,000)

Subtotal 148,681,737 375,488,629 3,156,596 378,645,225 – (184,466,407)

Cost method: Subsidiaries COSL Chemicals (Tianjin) Ltd. – 10,709,948 11,000,000 21,709,948 100% – 100% – – COSL America Inc. – 2,712,100 – 2,712,100 100% – 100% – – China Oilﬁ eld Services (BVI) Limited – – – – 100% – 100% – – COSL Hong Kong international Limited – 6,827,665,500 – 6,827,665,500 100% – 100% – – Haiyang Petroservices Ltd. – – 325,000 325,000 100% – 100% – –

ADTH – – 99,884 99,884 – – Subtotal – 6,841,087,548 11,424,884 6,852,512,432 – –

Total 148,681,737 7,216,576,177 14,581,480 7,231,157,657 – (184,466,407)

Annual Report 2009 193 Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

11. Notes to the major items of the financial statements of the company (continued) 3. Long-term equity investments (continued)

Increase/ Cash Initial Balance at the (decrease) Balance at the dividends investment beginning of during end of the Voting right Impairment during the 2008 costs the year the year year Shareholding ratio (%) ratio (%) provision year Direct Indirect

Equity method: Jointly-controlled entities China France Bohai 56,336,656 54,368,365 31,205,296 85,573,661 50% – 50% – (44,305,380) Magcobar 25,170,585 136,829,535 (6,786,176) 130,043,359 60% – 50% – (57,413,160) CNOOC-OTIS 27,520,607 27,208,916 6,175,579 33,384,495 50% – 50% – (1,366,900) Logging-Atlas 10,167,012 17,632,506 3,138,657 20,771,163 50% – 50% – (5,144,325) Fugro 10,134,627 26,952,665 15,202,418 42,155,083 50% – 50% – (8,294,052) COSL-Expro 19,352,250 33,773,907 29,786,961 63,560,868 50% – 50% – (13,000,000)

Subtotal 148,681,737 296,765,894 78,722,735 375,488,629 – (129,523,817)

Cost method: Subsidiaries COSL Chemicals (Tianjin) Ltd. 6,349,275 6,349,275 4,360,673 10,709,948 100% – 100% – – COSL America Inc. 2,712,100 2,712,100 – 2,712,100 100% – 100% – – China Oilﬁ eld Services(BVI) Limited – – – – 100% – 100% – – COSL Hong Kong international Limited 6,827,665,500 – 6,827,665,500 6,827,665,500 100% – 100% – –

Subtotal 6,836,726,875 9,061,375 6,832,026,173 6,841,087,548 – –

Total 6,985,408,612 305,827,269 6,910,748,908 7,216,576,177 – (129,523,817)

4. Revenue

2009 2008

Geophysical services 1,438,079,090 1,867,874,412 Drilling services 5,528,330,762 4,299,082,522 Well services 4,309,700,510 2,647,435,590 Marine support and transportation services 2,221,299,065 1,648,154,946

Total 13,497,409,427 10,462,547,470

194 China Oilﬁ eld Services Limited Financial Statements (PRC)

Notes to the Financial Statements

31 December 2009 RMB

11. Notes to the major items of the financial statements of the company (continued) 5. Operating costs

2009 2008

Geophysical services 1,071,481,166 1,153,087,490 Drilling services 2,808,334,062 2,295,986,832 Well services 3,414,735,889 2,041,828,353 Marine support and transportation services 1,468,137,623 1,073,777,818

Total 8,762,688,740 6,564,680,493

6. Investment income

2009 2008

Investment income from long-term equity investments using equity method 187,623,003 208,246,552 Return on government bonds and other investment income 11,000,000 29,978,843

Total 198,623,003 238,225,395

As of balance sheet date, there were no material restrictions on the repatriation of investment income of the Company.

12. Approval of financial statements These financial statements shall be submitted for review at shareholders’ general meeting pursuant to the Articles of Association of the Company. These financial statements have been approved by the Board of Directors on 30 March 2010.

Annual Report 2009 195 Financial Statements (PRC) Supplementary Information Prepared by the Management to Financial Statements Prepared in Accordance with Accounting Standards for Business Enterprises 31 December 2009 RMB Yuan 1. Items of non-recurring gain and loss

2009 2008

Losses on disposal of non-current assets (19,017,422) (53,429,454) Subsidy income credited to the income statement 6,489,526 24,258,570 Fair value losses on derivate ﬁ nancial instruments – (52,983,938) Gain/(losses) on swap and forward currency contracts 49,298,437 (151,658,433) Funds occupation fee charged to non-ﬁ nancial enterprises 1,355,275 – Reversal of impairment provision for accounts receivable under individual impairment tests 48,723,772 – Net amount of other non-operating income/(loss) (394,242,858) (2,805,149)

Total of non-recurring gain and loss (307,393,270) (236,618,404)

Tax eﬀ ect 53,503,756 4,796,405 Net amount aﬀ ecting under non-recurring gain and loss (253,889,514) (231,821,999)

The Group’s recognition of non-recurring profit and loss items follows the Circular [2008] No. 43 issued by China Securities Regulatory Commission – “Information Disclosure Explanatory Notice No.1 – non-recurring Gains and Losses for the Companies Conducting Public Offering of Securities”.

2. Reconciliation statement for differences between PRC and Hong Kong financial statements In connection with the basis for preparation of the financial statements as mentioned in the notes to the financial statements, the directors of the Company believe that there is no material difference in terms of the accounting policies between the financial statements for the period ended 31 December 2009 as prepared by the Group in accordance with the Accounting Standards for Business Enterprises promulgated by the Ministry of Finance of the People’s Republic of China in February 2006 (the “Financial Statements”) and the corresponding periods’ financial statements of the Group prepared in accordance with the Hong Kong Financial Reporting Standards. As such, the net profits or net assets as reported in these financial statements are substantially similar with these reported in the financial statements prepared in accordance with the Hong Kong Financial Reporting Standards, and no reconciliation on adjustments is required. The overseas auditor of the Company is Ernst & Young.

196 China Oilﬁ eld Services Limited Financial Statements (PRC)

2009 Return on net assets ratio Earnings per share Fully Weighted diluted average Basic Diluted

Net proﬁ t attributable to the ordinary share shareholders of the Parent 14.06% 14.89% 0.70 0.70

Net proﬁ t, aft er deduction of non-recurring gains and losses, attributable to the ordinary share shareholders of the Parent 15.19% 16.10% 0.75 0.75

2008 Return on net assets ratio Earnings per share Fully Weighted diluted average Basic Diluted

Net proﬁ t attributable to the ordinary share shareholders of the Parent 15.67% 16.76% 0.69 0.69

Net proﬁ t, aft er deduction of non-recurring gains and losses, attributable to the ordinary share shareholders of the Parent 16.84% 18.02% 0.74 0.74

Annual Report 2009 197 Financial Statements (PRC)

According to the requirement of Information Disclosure Rules of Companies which Publicly Issue Securities No. 15-General Rules on Financial Statements (amended in 2010), an analysis for the financial statement items either with fluctuation over 30% compared with the comparative period, or with the amount over 5% of the total assets as at the reporting date or 10% of profit before tax for the reporting period, is as follows:

Balance at Balance at the end the beginning Items in of the year of the year Financial (or amount of (or amount Fluctuation Statements this year) of last year) Amount Ratio Remark

Items in Balance Sheet

Current Assets Accounts receivable 3,745,547,364 2,735,024,686 1,010,522,678 36.9% (1) Prepayments 528,233,255 1,281,548,540 (753,315,285) (58.8%) (2) Interest receivable 1,080,000 4,342,362 (3,262,362) (75.1%) (3) Dividend receivable 23,754,415 16,391,075 7,363,340 44.9% (4)

Non-current assets Available-for-sale ﬁ nancial assets 19,281,034 34,317,535 (15,036,501) (43.8%) (5) Held-to-maturity investments 39,081,025 78,235,318 (39,154,293) (50.0%) (6) Fixed assets 30,092,311,149 24,137,207,634 5,955,103,515 24.7% (7)

Current liabilities Short-term bank borrowings – 6,835,596,924 (6,835,596,924) (100.0%) (8) Notes payable – 366,762,500 (366,762,500) (100.0%) (9) Accounts payable 3,175,095,974 2,376,732,369 798,363,605 33.6% (10) Receipts in advance 5,255,901 38,818,223 (33,562,322) (86.5%) (11) Tax payable 153,070,242 343,298,457 (190,228,215) (55.4%) (12) Interest payable 139,212,858 327,961,642 (188,748,784) (57.6%) (13) Other payable 358,827,721 636,027,209 (277,199,488) (43.6%) (14) Current portion of non-current liabilities 283,081,032 943,020,215 (659,939,183) (70.0%) (15) Other current liabilities 606,038,526 54,381,067 551,657,459 1,014.4% (16)

Non-current liabilities Derivative ﬁ nancial instruments – 49,307,921 (49,307,921) (100.0%) (17) Long-term bank borrowings 28,151,039,943 16,355,446,023 11,795,593,920 72.1% (18) Long-term bonds 2,670,019,752 4,028,341,874 (1,358,322,122) (33.7%) (19) Staﬀ cost payable 1,381,058 5,663,626 (4,282,568) (75.6%) (20) Other non-current liabilities 816,512,769 1,930,706,662 (1,114,193,893) (57.7%) (21)

Shareholders’ Equity Statutory reserve fund 1,335,639,695 1,000,055,668 335,584,027 33.6% (22)

Items in Income Statement Revenue 18,345,401,415 12,430,252,591 5,915,148,824 47.6% (23) Operating cost 11,688,942,398 7,929,906,369 3,759,036,029 47.4% (24) Business taxes and surcharges 466,747,758 287,308,569 179,439,189 62.5% (25) Financial expenses 868,061,764 366,105,924 501,955,840 137.1% (26) Assets impairment loss 879,390,769 159,493,125 719,897,644 451.4% (27) Fair value loss – 52,983,938 (52,983,938) (100.0%) (28) Investment income 159,562,623 89,666,903 69,895,720 78.0% (29) Non-operating income 95,098,628 48,670,373 46,428,255 95.4% (30) Non-operating expenses 501,869,382 80,646,406 421,222,976 522.3% (31) Income tax expenses 624,282,438 205,045,264 419,237,174 204.5% (32)

198 China Oilﬁ eld Services Limited Financial Statements (PRC)

Supplementary Information Prepared by the Management to Financial Statements Prepared in Accordance with Accounting Standards for Business Enterprises 31 December 2009 RMB Yuan (1) Accounts receivable: the increase in accounts receivable was due to of the increase in the Group’s income and the prolonged credit terms of accounts receivables as compared with 2008. (2) Prepayments: the decrease in prepayments was mainly due to the transfer of prepayments for projects to construction in progress according to the progress of the construction. (3) Interest receivable: the decrease in interest receivable for the year was due to the decline in bank time deposit as a result of our operation needs. (4) Dividend receivable: the balances of dividend receivable were mainly unpaid dividends declared by jointly-controlled entities; its increase was mainly due to the increase in declared dividends from jointly-controlled entities compared with 2008. (5) Available for sale fi nancial assets: the market value of investment in Petrojack ASA held by CDE has declined signifi cantly. Th e Group deemed it as an impairment on investment in available for sale fi nancial assets, and recognized an impairment loss of RMB15,000,000 during the year. (6) Held-to-maturity investments: part of the pledged deposit was transferred to current portion of non-current assets because of nearing maturity. (7) Fixed assets: there are 2 jack-up drilling rigs, 2 land drilling rigs, 10 oilfi eld utility vessels, 3 well workover support barges construction completed and purchased certain for well services equipment and facilities. (8) Short-term bank borrowings: the balance was reduced to zero, because the Group repaid all short-term bank borrowings in the year. (9) Notes payables: the Group had paid for construction of four 200 feet drilling vessels in the year. (10) Accounts payables: the increase was mainly due to the increase in procurement following the operation commencement of various assets. (11) Receipts in advance: receipts in advance were transferred to revenue from main business when services were provided, and there was no receipt in advance for additional businesses in 2009. (12) Taxes payables: taxes payables deceased was mainly due to the decrease of income taxes payables. Th e main reason was that the Company was entitled preferential taxes for advanced technology enterprises, and therefore its accrued tax rate for overseas income decreased from 25% in 2008 to 15%. (13) Interests payables: the reduction in interests payables was mainly because the Group refi nanced its loans in overseas. Th e interest of new loans were paid at the end of each year, while the interest of former loans were paid at the beginning of each year. Th erefore, part of interests payables for 2009 was paid at the end of the year, which resulted in the decrease in balance as compared with 2008. (14) Other payables: the reduction in other payables was mainly because the Group paid for part of the fees of agent institutions for merger and acquisition, as well as paid for jointly-controlled entities. (15) Current portion of non-current liabilities: the Group repaid RMB660,000,000 borrowings from Nordea Bank Norge ASA, which were due in May of the year. (16) Other current liabilities: this was resulted from provisions on contingent claims and litigation. (17) Derivate fi nancial instruments: the Group repaid NOK500,000,000 senior unsecured NOK bond, and the corresponding interest rate swap contract, amounted to NOK250,000,000, was also cancelled subsequently. (18) Long-term bank borrowings: it mainly comprised the followings amounts: the RMB1,300,000,000 loans borrowed from CNOOC Finance Co., Ltd. in the year to repay prior loans and supplement working capital; the US$1,400,000,000 loans from the Bank of China Limited and the Industrial and Commercial Bank of China Limited to swap US$1,400,000,000 syndicated bank borrowings for subsidiaries; US$1,580,000,000 loans from the Bank of China Limited to swap Nordea Bank loans for CDE and supplement working capital; RMB450,000,000 loans from the Export-Import Bank of China to construct land drilling rigs in Libya. In addition, RMB650,000,000 commercial loans at the beginning of the year was fully repaid during the year. And, the long-term bank borrowings matured with 1 year had been transferred into current portion of non-current liabilities.

Annual Report 2009 199 Financial Statements (PRC)

Supplementary Information Prepared by the Management to Financial Statements Prepared in Accordance with Accounting Standards for Business Enterprises 31 December 2009 RMB Yuan (19) Long-term bonds: the Group redeemed all of the NOK500,000,000 senior unsecured NOK bond, and redeemed part of senior unsecured US$ bonds and part of second security priority US$ bond. (20) Staff cost payable (non-current portion): this was mainly due to the payment of defi ned benefi t scheme as a result of reduction in the number of employees in Norway. (21) Other non-current liabilities: this was mainly due to the relevant deferred revenue charged to P&L during the year as a result of cancellation of the operation contract for a drilling rig. (22) Surplus reserves: this was mainly the statutory surplus reserve accured. (23) Revenue: (a) Revenue from drilling services increased by RMB4,096,443,069, mainly due to the full year operation results of the acquired CDE and highly effi cient use of new equipments. (b) Revenue from well services increased by RMB1,725,216,900, which was attributable to the increase in operation volume due to the development of new markets and the addition of drilling equipments. (c) Benefi ted from the additional equipments and eff ective use of external resources, revenue from marine support and transportation services increased by RMB573,931,541. (d) Revenue from geophysical services decreased by RMB480,442,686 due to a drop in operation volume. (24) Operating costs: the increase was caused by the increase in depreciation charge, consumption of supplies and fuel, staff cost, subcontracting expenses, premises rental and other costs as a result of full-year operation of CDE, increment in job volume, and new assets and equipments commence to operating. (25) Business taxes and surcharges: this was caused by increase of income for the year. (26) Finance cost: the increased of fi nance costs were mainly due to the increase in interest expenses which came along with the additional borrowings and ceased to be capitalized because of the completion of the construction. Besides, interest income decreased as a result of the decrease in bank deposits. (27) Assets impairment losses: due to the infl uence on the industry imposed by macroeconomics and the delayed delivery of three semi-submersible drilling rigs under construction, the assets impairment losses amounting RMB819,888,718 was recognized according to the impairment assessment performed by the management pursuant to accounting standard. (28) Fair value losses: mainly due to the cancellation of swap contracts which realized change in fair value investment income from jointly-controlled entities compared with the last year has been recognized in investment income during the year. (29) Investment income: this was mainly due to gain on disposal of derivative fi nancial instruments during the year. (30) Non-operating income: this was mainly due the increase in insurance compensation received as compared with the last year. (31) Non-operating expenses: mainly composed by the litigation compensation and liquidated damages accured. (32) Income tax expenses: this was mainly due to the increase in the Group’s income and there were no tax return of preferential tax for advanced technology enterprise during the year, due to that the Company provided for income tax at the preferential rate of 15% as an advanced technology enterprise since 2008.

200 China Oilﬁ eld Services Limited Independent Auditors’ Report

To the shareholders of China Oilfi eld Services Limited (Established in the People’s Republic of China with limited liability) We have audited the fi nancial statements of China Oilfi eld Services Limited set out on pages 202 to 274, which comprise the consolidated and company statements of fi nancial position as at 31 December 2009, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes.

Directors’ responsibility for the fi nancial statements Th e directors of the Company are responsible for the preparation and the true and fair presentation of these fi nancial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certifi ed Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. Th is responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certifi ed Public Accountants. Th ose standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. Th e procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and true and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the fi nancial statements give a true and fair view of the state of aff airs of the Company and of the Group as at 31 December 2009 and of the Group’s profi t and cash fl ows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young Certifi ed Public Accountants 18th Floor, Two International Finance Centre 8 Finance Street, Central Hong Kong 30 March 2010

Annual Report 2009 201 Financial Statements (HK) Consolidated Income Statement Year ended 31 December 2009

Notes 2009 2008 RMB’000 RMB’000

REVENUE 4 17,878,654 12,142,944 Other revenues 4 95,099 48,671

17,973,753 12,191,615

Depreciation of property, plant and equipment and amortisation of intangible assets 5 (2,865,166) (1,563,534) Employee compensation costs 5 (2,669,618) (2,106,497) Repair and maintenance costs 5 (609,441) (420,257) Consumption of supplies, materials, fuel, services and others (3,610,001) (2,720,083) Subcontracting expenses (884,384) (542,226) Operating lease expenses 5 (589,118) (356,136) Other operating expenses (1,076,167) (693,870) Other selling, general and administrative expenses (381,870) (158,523) Impairment of property, plant and equipment (819,889) –

Total operating expenses (13,505,654) (8,561,126)

PROFIT FROM OPERATIONS 4,468,099 3,630,489

Financial income/(expenses) Exchange losses, net (92,686) (91,358) Finance costs 6 (786,430) (638,985) Interest income 60,352 191,433

Financial expenses, net (818,764) (538,910)

Share of proﬁ ts of jointly-controlled entities 18 110,264 215,707

PROFIT BEFORE TAX 5 3,759,599 3,307,286

Income tax expense 10 (624,282) (205,045)

PROFIT FOR THE YEAR 3,135,317 3,102,241

Attributable to owners of the parent 11 3,135,317 3,102,241

EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic and diluted 13 69.75 cents 69.01 cents

202 China Oilﬁ eld Services Limited Financial Statements (HK) Consolidated Statement of Comprehensive Income Year ended 31 December 2009

Notes 2009 2008 RMB’000 RMB’000

PROFIT FOR THE YEAR 3,135,317 3,102,241

OTHER COMPREHENSIVE INCOME

Exchange diﬀ erences on translation of foreign operations 1,789 10,033

OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 1,789 10,033

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3,137,106 3,112,274

Attributable to owners of the parent 3,137,106 3,112,274

Annual Report 2009 203 Financial Statements (HK) Consolidated Statement of Financial Position 31 December 2009

Notes 2009 2008 RMB’000 RMB’000 (Restated)

NON-CURRENT ASSETS Property, plant and equipment 14 45,086,542 40,345,211 Goodwill 15 4,600,473 4,604,785 Intangible assets 16 456,366 523,799 Interests in jointly-controlled entities 18 540,924 620,329 Available-for-sale investments 19 19,381 34,318 Pledged time deposits 25 39,081 78,235

Total non-current assets 50,742,767 46,206,677

CURRENT ASSETS Inventories 20 820,549 780,871 Prepayments, deposits and other receivables 21 755,500 1,505,856 Accounts receivable 22 3,745,547 2,735,025 Notes receivable 23 429,658 354,870 Other current assets 24 20,583 – Pledged time deposits 25 247,311 53,768 Cash and cash equivalents 25 4,014,603 4,563,834

Total current assets 10,033,751 9,994,224

CURRENT LIABILITIES Trade and other payables 26 4,223,972 3,430,891 Notes payable – 366,763 Salary and bonus payables 27 477,407 485,875 Tax payable 86,826 252,460 Interest-bearing bank borrowings 29 283,081 7,778,617

Total current liabilities 5,071,286 12,314,606

NET CURRENT ASSETS/(LIABILITIES) 4,962,465 (2,320,382)

TOTAL ASSETS LESS CURRENT LIABILITIES 55,705,232 43,886,295

NON-CURRENT LIABILITIES Deferred tax liabilities 28 1,790,789 1,697,132 Interest-bearing bank borrowings 29 28,151,040 16,355,446 Long term bonds 30 2,670,020 4,028,342 Deferred revenue 31 780,114 1,858,302 Defi ned benefi t obligations 9 1,381 5,664 Derivative fi nancial instruments 32 – 49,308 Other non-current liabilities 33 6,283 94,257

Total non-current liabilities 33,399,627 24,088,451

Net assets 22,305,605 19,797,844

EQUITY Equity attributable to owners of the parent Issued capital 34 4,495,320 4,495,320 Reserves 35 17,180,940 14,673,179 Proposed ﬁ nal dividends 12 629,345 629,345

Total equity 22,305,605 19,797,844

Director: Liu Jian Director: Li Yong

204 China Oilﬁ eld Services Limited Financial Statements (HK) Consolidated Statement of Changes in Equity Year ended 31 December 2009

Attributable to owners of the parent Statutory Proposed Cumulative Issued Capital reserve Retained ﬁ nal translation Minority capital reserve funds proﬁ ts dividend reserve Total interests Total equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2008 4,495,320 8,074,565 677,615 3,428,226 539,438 9,844 17,225,008 – 17,225,008 Final 2007 dividend declared – – – – (539,438) – (539,438) – (539,438) Total comprehensive income for the year – – – 3,102,241 – 10,033 3,112,274 – 3,112,274 Proposed ﬁ nal 2008 dividend (Note 12) – – – (629,345) 629,345 – – – – Acquisition of a subsidiary** – – – – – – – 181,034 181,034 Acquisition of minority interests – – – – – – – (181,034) (181,034) Transfer to statutory reserve funds – – 322,441 (322,441) – – – – –

At 31 December 2008 and 1 January 2009 4,495,320 8,074,565* 1,000,056* 5,578,681* 629,345 19,877* 19,797,844 – 19,797,844

Final 2008 dividend declared – – – – (629,345) – (629,345) – (629,345) Total comprehensive income for the year – – – 3,135,317 – 1,789 3,137,106 – 3,137,106 Proposed ﬁ nal 2009 dividend (Note 12) – – – (629,345) 629,345 – – – – Transfer to statutory reserve funds – – 335,584 (335,584) – – – – –

At 31 December 2009 4,495,320 8,074,565* 1,335,640* 7,749,069* 629,345 21,666* 22,305,605 – 22,305,605

* Th ese reserve accounts comprise the consolidated reserves of approximately RMB17,180,940,000 (2008: RMB14,673,179,000) in the consolidated statement of fi nancial position.

** On 29 September 2008, the Group acquired a 98.8% interest in AWO (currently known as COSL Drilling Europe AS, “CDE”). On 15 October 2008, the Group acquired the rest of the interest thereby holding a 100% interest in CDE.

Annual Report 2009 205 Financial Statements (HK) Consolidated Statement of Cashﬂ ows Year ended 31 December 2009

Notes 2009 2008 RMB’000 RMB’000

CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 39 6,301,124 4,456,808 Taxes paid: Mainland China corporate income tax paid (540,344) (418,969) Mainland China corporate income tax refund – 55,113 Overseas income taxes paid (155,915) (55,151)

Net cash ﬂ ows from operating activities 5,604,865 4,037,801

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment (7,398,673) (7,630,571) Purchase of available-for-sale investments (100) (1,060,000) Sale of available-for-sale investments – 1,692,956 Proceeds from disposal of items of property, plant and equipment 12,671 11,694 Increase/(decrease)in net balances with jointly-controlled entities 7,292 (1,140) (Increase)/decrease in time deposits with original maturity of more than three months (531,654) 1,700,520 Increase in pledged time deposits (154,389) (2,444) Interest received 63,615 183,698 Dividends received from jointly-controlled entities 218,854 126,838 Investment in a subsidiary (325) – Acquisition of a subsidiary 36 – (15,647,033)

Net cash ﬂ ows used in investing activities (7,782,709) (20,625,482)

Net cash ﬂ ows before ﬁ nancing activities (2,177,844) (16,587,681)

CASH FLOWS FROM FINANCING ACTIVITIES Receipt of research and development subsidy 100,720 55,040 New bank loans 23,227,901 15,781,719 Repayment of bank loans and long term bonds (20,177,339) (370,865) Repayment of other loans – (200,000) Dividends paid (629,345) (539,438) Loan arrangement fees (66,698) (77,873) Interest paid (1,318,423) (408,706)

Net cash ﬂ ows from ﬁ nancing activities 1,136,816 14,239,877

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,041,028) (2,347,804) Cash and cash equivalents at beginning of year 4,295,488 6,797,122 Eﬀ ect of foreign exchange rate changes, net (39,857) (153,830)

CASH AND CASH EQUIVALENTS AT END OF YEAR 3,214,603 4,295,488

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and balances with banks and ﬁ nancial institutions 25 4,300,995 4,695,837 Less: Pledged time deposits 25 (286,392) (132,003)

Cash and cash equivalents as stated in the statement of ﬁ nancial position 25 4,014,603 4,563,834 Less: Non-pledged time deposits at banks with original maturity of more than three months when acquired (800,000) (268,346)

Cash and cash equivalents as stated in consolidated statement of cash ﬂ ows 3,214,603 4,295,488

206 China Oilﬁ eld Services Limited Financial Statements (HK) Statement of Financial Position 31 December 2009

Notes 2009 2008 RMB’000 RMB’000

NON–CURRENT ASSETS Property, plant and equipment 14 19,508,127 15,271,628 Intangible assets 16 311,914 314,545 Investments in subsidiaries 17 6,852,413 6,841,088 Interests in jointly-controlled entities 18 138,728 133,515 Available-for-sale investments 100 – Other long term receivables 41 20,450,459 –

Total non–current assets 47,261,741 22,560,776

CURRENT ASSETS Inventories 20 617,242 650,306 Prepayments, deposits and other receivables 21 1,469,844 1,773,327 Accounts receivable 22 4,197,063 3,316,609 Notes receivable 23 429,658 354,870 Pledged time deposits 25 4,902 3,417 Cash and cash equivalents 25 2,550,111 3,038,585

Total current assets 9,268,820 9,137,114

CURRENT LIABILITIES Trade and other payables 26 3,117,485 2,400,333 Notes payable – 366,763 Salary and bonus payables 27 433,105 420,783 Tax payable 41,877 161,665 Interest-bearing bank borrowings 29 244,000 244,000

Total current liabilities 3,836,467 3,593,544

NET CURRENT ASSETS 5,432,353 5,543,570

TOTAL ASSETS LESS CURRENT LIABILITIES 52,694,094 28,104,346

NON–CURRENT LIABILITIES Deferred tax liabilities 28 365,890 281,828 Interest-bearing bank borrowings 29 28,111,959 6,367,680 Long term bonds 30 1,500,000 1,500,000 Deferred revenue 36,565 –

Total non-current liabilities 30,014,414 8,149,508

Net assets 22,679,680 19,954,838

EQUITY Issued capital 34 4,495,320 4,495,320 Reserves 35 17,555,015 14,830,173 Proposed ﬁ nal dividend 12 629,345 629,345

Total equity 22,679,680 19,954,838

Director: Liu Jian Director: Li Yong

Annual Report 20009 207 Financial Statements (HK) Notes to Financial Statements 31 December 2009

1. Corporate information China Oilfi eld Services Limited (the “Company”) is a limited liability company incorporated in the People’s Republic of China (the “PRC”). Th e registered offi ce of the Company is located at 3-1516 Hebei Road, Haiyang New and Hi-Tech Development Zone, Tanggu, Tianjin 300451, the PRC. As part of the reorganisation (the “Reorganisation”) of China National Off shore Oil Corporation (“CNOOC”) in preparation for the listing of the Company’s shares on Th e Stock Exchange of Hong Kong Limited (the “HKSE”) in 2002, and pursuant to an approval document obtained from the relevant government authority dated 26 September 2002, the Company was restructured into a joint stock limited liability company. During the year, the Company and its subsidiaries (hereinaft er collectively referred to as the “Group”) were principally engaged in the provision of oilfi eld services including drilling services, well services, marine support and transportation services, and geophysical services. In the opinion of the directors, the holding company and the ultimate holding company of the Company is CNOOC, which is a state- owned enterprise incorporated in the PRC.

2.1 Basis of preparation Th ese fi nancial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certifi ed Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. Th ey have been prepared under the historical cost convention, except for available-for-sale investments and derivative fi nancial instruments, which have been measured at fair value. Th ese fi nancial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated. Basis of consolidation Th e consolidated fi nancial statements include the fi nancial statements of the Group for the year ended 31 December 2009. Th e results of the subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full. Acquisition of subsidiaries has been accounted for using the purchase method of accounting. Th is method involves allocating the cost of the business combinations to the fair value of the identifi able assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. Th e cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries. An acquisition of minority interests is accounted for using the entity concept method whereby the diff erence between the consideration and the book value of the share of the net assets acquired is recognised as an equity transaction.

2.2 Changes in accounting policy and disclosures Th e Group has adopted the following new and revised HKFRSs for the fi rst time for the current year’s fi nancial statements. HKFRS 1 and HKAS 27 Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS 27 Consolidated Amendments and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate HKFRS 2 Amendments Amendments to HKFRS 2 Share-based Payment – Vesting Conditions and Cancellations HKFRS 7 Amendments Amendments to HKFRS 7 Financial Instruments: Disclosures –Improving Disclosures about Financial Instruments HKFRS 8 Operating Segments HKAS 1 (Revised) Presentation of Financial Statements HKAS 23 (Revised) Borrowing Costs HKAS 32 and HKAS 1 Amendments to HKAS 32 Financial Instruments: Presentation and HKAS 1 Presentation Amendments of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation HK(IFRIC)-Int 9 and Amendments to HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives and HKAS 39 HKAS 39 Amendments Financial Instruments: Recognition and Measurement – Embedded Derivatives HK(IFRIC)-Int 13 Customer Loyalty Programmes HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation HK(IFRIC)-Int 18 Transfers of Assets from Customers (adopted from 1 July 2009) Improvements to HKFRSs Amendments to a number of HKFRSs (October 2008) * * Th e Group adopted all the improvements to HKFRSs issued in October 2008 except for the amendments to HKFRS 5 Non-current assets Held for Sale and Discontinued Operations – Plan to sell the controlling interest in a subsidiary, which is eff ective for annual periods beginning on or aft er 1 July 2009. 208 China Oilfi eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.2 Changes in accounting policy and disclosures (continued) Other than as further explained below regarding the impact of HKFRS 7 Amendments, HKFRS 8, HKAS 1 (Revised) and HKAS 23, the adoption of these new and revised HKFRSs has had no signifi cant fi nancial eff ect on these fi nancial statements, and except for giving rise to changes to the accounting policy for the reclassifi cation of fi nancial assets as further described below, there have been no signifi cant changes to the accounting policies applied in these fi nancial statements. Th e HKFRS 7 Amendments require additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by sources of inputs using a three-level fair value hierarchy, by class, for all fi nancial instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance is now required for Level 3 fair value measurements, as well as signifi cant transfers between levels in the fair value hierarchy. Th e amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. Th e fair value measurement disclosures are presented in Note 42 to the fi nancial statements while the revised liquidity risk disclosures are presented in Note 43 to the fi nancial statements. HKFRS 8, which replaces HKAS 14 Segment Reporting, specifi es how an entity should report information about its operating segments, based on information about the components of the entity that is available to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. Th e standard also requires the disclosure of information about the products and services provided by the segments, the geographical areas in which the Group operates, and revenue from the Group’s major customers. Th e Group concluded that the operating segments determined in accordance with HKFRS 8 are the same as the business segments previously identifi ed under HKAS 14. Th ese revised disclosures, including the related revised comparative information, are shown in Note 3 to the fi nancial statements. HKAS 1 (Revised) introduces changes in the presentation and disclosures of fi nancial statements. Th e revised standard separates owner and non-owner changes in equity. Th e statement of changes in equity includes only details of transactions with owners, with all non- owner changes in equity presented as a single line. In addition, this standard introduces the statement of comprehensive income, with all items of income and expense recognised in profi t or loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements. Th e Group has elected to present two statements. HKAS 23 has been revised to require capitalisation of borrowing costs when such costs are directly attributable to the acquisition, construction or production of a qualifying asset. As the Group’s current policy for borrowing costs aligns with the requirements of the revised standard, the revised standard has had no impact on the fi nancial position or results of operations of the Group. Apart from the above, the HKICPA has issued Improvements to HKFRSs 2008 which set out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifying wording. While the adoption of some of the amendments may result in changes in accounting policy, none of them are expected to have a material fi nancial impact on the Group. Th e Group has also considered all other HK(IFRIC)s issued and they are unlikely to have any fi nancial impact on the Group.

Annual Report 2009 209 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.3 Issued but not yet eff ective hong kong fi nancial reporting standards Th e Group has not applied the following new and revised HKFRSs, that have been issued but are not yet eff ective, in these fi nancial statements. HKFRS 1 (Revised) First-time Adoption of Hong Kong Financial Reporting Standards 1 HKFRS 1 Amendments Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards – Additional Exemptions for First-time Adopters 2 HKFRS 2 Amendments Amendments to HKFRS 2 Share-based Payment – Group Cash-settled Share-based Payment Transactions 2 HKFRS 3 (Revised) Business Combinations 1 HKFRS 9 Financial Instruments 6 HKAS 24 (Revised) Related Party Disclosures 5 HKAS 27 (Revised) Consolidated and Separate Financial Statements 1 HKAS 32 Amendment Amendment to HKAS 32 Financial Instruments: Presentation –Classifi cation of Rights Issues 3 HKAS 39 Amendment Amendment to HKAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items 1 HK(IFRIC)-Int 14 Amendments Amendments to HK(IFRIC)-Int 14 Prepayments of a Minimum Funding Requirement 5 HK(IFRIC)-Int 17 Distributions of Non-cash Assets to Owners 1 HK(IFRIC)-Int 19 Extinguishing Financial Liabilities with Equity Instruments 4 Amendments to HKFRS 5 Amendments to HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations included in Improvements – Plan to Sell the Controlling Interest in a Subsidiary 1 to HKFRSs issued in October 2008 HK Interpretation 4 Leases – Determination of the Length of Lease Term in respect (Revised in December 2009) of Hong Kong Land Leases 2 Apart from the above, the HKICPA has issued Improvements to HKFRSs 2009 which sets out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifying wording. Th e amendments to HKFRS 2, HKAS 38, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 16 are eff ective for annual periods beginning on or aft er 1 July 2009 while the amendments to HKFRS 5, HKFRS 8, HKAS 1, HKAS 7, HKAS 17, HKAS 38 and HKAS 39 are eff ective for annual periods beginning on or aft er 1 January 2010 although there are separate transitional provisions for each standard or interpretation. 1 Eff ective for annual periods beginning on or aft er 1 July 2009 2 Eff ective for annual periods beginning on or aft er 1 January 2010 3 Eff ective for annual periods beginning on or aft er 1 February 2010 4 Eff ective for annual periods beginning on or aft er 1 July 2010 5 Eff ective for annual periods beginning on or aft er 1 January 2011 6 Eff ective for annual periods beginning on or aft er 1 January 2013 HKFRS 1 (Revised) was issued with an aim to improve the structure of the standard. Th e revised version of the standard does not make any changes to the substance of accounting by fi rst-time adopters. As the Group is not a fi rst-time adopter of HKFRSs, the amendments will not have any fi nancial impact on the Group. Th e HKFRS 2 Amendments provide guidance on how to account for cash-settled share-based payment transactions in the separate fi nancial statements of the entity receiving the goods and services when the entity has no obligation to settle the share-based payment transactions. Th e amendments also incorporate guidance that was previously included in HK(IFRIC)-Int 8 Scope of HKFRS 2 and HK(IFRIC)-Int 11 HKFRS 2 – Group and Treasury Share Transactions. Th e Group expects to adopt the HKFRS 2 Amendments from 1 January 2010. Th e amendments are unlikely to have any signifi cant implications on the Group’s accounting for share-based payments. HKFRS 3 (Revised) introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results.

210 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.3 Issued but not yet eff ective hong kong fi nancial reporting standards (continued) HKAS 27 (Revised) requires that a change in the ownership interest of a subsidiary without loss of control is accounted for as an equity transaction. Th erefore, such a change will have no impact on goodwill, nor will it give rise to a gain or loss. Furthermore, the revised standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments were made to HKAS 7 Statement of Cash Flows, HKAS 12 Income Taxes, HKAS 21 Th e Eff ects of Changes in Foreign Exchange Rates, HKAS 28 Investments in Associates and HKAS 31 Interests in Joint Ventures. Th e Group expects to adopt HKFRS 3 (Revised) and HKAS 27 (Revised) from 1 January 2010. Th e changes introduced by these revised standards must be applied prospectively and will aff ect the accounting of future acquisitions, loss of control and transactions with minority interests HKFRS 9 issued in November 2009 is the fi rst part of phase 1 of a comprehensive project to entirely replace HKAS 39 Financial Instruments: Recognition and Measurement. Th is phase focuses on the classifi cation and measurement of fi nancial assets. Instead of classifying fi nancial assets into four categories, an entity shall classify fi nancial assets as subsequently measured at either amortised cost or fair value, on the basis of both the entity’s business model for managing the fi nancial assets and the contractual cash fl ow characteristics of the fi nancial assets. Th is aims to improve and simplify the approach for the classifi cation and measurement of fi nancial assets compared with the requirements of HKAS 39. HKAS 39 is aimed to be replaced by HKFRS 9 in its entirety by the end of 2010. Th e Group expects to adopt HKFRS 9 from 1 January 2013. HKAS 24 (Revised) clarifi es and simplifi es the defi nition of related parties. It also provides for a partial exemption of related party disclosure to government-related entities for transactions with the same government or entities that are controlled, jointly controlled or signifi cantly infl uenced by the same government. Th e Group expects to adopt HKAS 24 (Revised) from 1 January 2011 and the comparative related party disclosures will be amended accordingly. Th e HK(IFRIC)-Int 14 Amendments remove an unintended consequence arising from the treatment of prepayments of future contributions in certain circumstances when there is a minimum funding requirement. Th e amendments require an entity to treat the benefi t of an early payment as a pension asset. Th e economic benefi t available as a reduction in future contributions is thus equal to the sum of (i) the prepayment for future services and (ii) the estimated future services costs less the estimated minimum funding requirement contributions that would be required as if there were no prepayments. Th e amendments to HKFRS 5 clarify that all assets and liabilities of a subsidiary shall be classifi ed as held for sale if an entity has a sale plan involving loss of control of the subsidiary, regardless of whether the entity will retain a non-controlling interest. Th e Group expects to adopt the amendments from 1 January 2010. Th e changes must be applied prospectively and will aff ect future sale transactions or plans involving loss of control of a subsidiary.

Annual Report 2009 211 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies Subsidiaries A subsidiary is an entity whose fi nancial and operating policies the Company controls, directly or indirectly, so as to obtain benefi ts from its activities. Th e results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. Th e Company’s investments in subsidiaries are stated at cost less any impairment losses. Jointly-controlled entities A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity. Th e Group’s interests in jointly-controlled entities are stated in the consolidated statement of fi nancial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Th e Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated income statement and consolidated reserves, respectively. Unrealised gains and losses resulting from transactions between the Group and its jointly-controlled entities are eliminated to the extent of the Group’s interests in the jointly-controlled entities, except where unrealised losses provide evidence of an impairment of the asset transferred. Th e results of jointly-controlled entities are included in the Company’s income statement to the extent of dividends received and receivable. Th e Company’s interests in jointly-controlled entities are treated as non-current assets and are stated at cost less any impairment losses. Goodwill Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group's interest in the net fair value of the acquirees' identifi able assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition. Goodwill on acquisitions for which the agreement date is on or aft er 1 January 2005 Goodwill arising on acquisition is recognised in the consolidated statement of fi nancial position as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses. Th e carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected to benefi t from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period. Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Impairment of non-fi nancial assets other than goodwill Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, fi nancial assets and goodwill), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. An impairment loss is charged to the consolidated income statement in the period in which it arises.

212 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Impairment of non-fi nancial assets other than goodwill (continued) An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the consolidated income statement in the period in which it arises. Related parties A party is considered to be related to the Group if: (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it signifi cant infl uence over the Group; or (iii) has joint control over the Group; (b) the party is an associate; (c) the party is a jointly-controlled entity; (d) the party is a member of the key management personnel of the Group or its parent; (e) the party is a close member of the family of any individual referred to in (a) or (d); (f) the party is an entity that is controlled, jointly controlled or signifi cantly infl uenced by or for which signifi cant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or (g) the party is a post-employment benefi t plan for the benefi t of employees of the Group, or of any entity that is a related party of the Group. Property, plant and equipment and depreciation Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. Th e cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred aft er items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the consolidated income statement in the period in which it is incurred. In situations where the recognition criteria are satisfi ed, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where signifi cant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specifi c useful lives and depreciation. Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. Th e estimated useful lives of property, plant and equipment are as follows: Tankers and vessels 10 to 20 years Drilling rigs (including drilling rig components) 25 to 30 years Machinery and equipment 5 to 10 years Motor vehicles 5 years Buildings 20 years Where parts of an item of property, plant and equipment have diff erent useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each fi nancial year end. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the consolidated income statement in the year the asset is derecognised is the diff erence between the net sales proceeds and the carrying amount of the relevant asset. Construction in progress represents drilling rigs, vessels and equipment under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassifi ed to the appropriate category of property, plant and equipment when completed and ready for use.

Annual Report 2009 213 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Intangible assets other than goodwill Th e intangible assets acquired separately are measured on initial recognition at cost. Th e cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Th e useful lives of intangible assets are assessed to be either fi nite or indefi nite. Intangible assets with fi nite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Th e amortisation period and the amortisation method for an intangible asset with a fi nite useful life are reviewed at least at each fi nancial year end. Th e estimated useful life of intangible assets is as follows: Prepaid land lease payments 50 years Management soft ware 10 years Soft ware 3 to 5 years Contract value Contract period Leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases are charged to the consolidated income statement on the straight-line basis over the lease terms. Prepaid and lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. Investments and other fi nancial assets Initial recognition and measurement Financial assets within the scope of HKAS 39 are classifi ed as fi nancial assets at fair value through profi t or loss, loans and receivables, held-to-maturity investments, and available-for-sale fi nancial assets, or as derivatives designated as hedging instruments in an eff ective hedge, as appropriate. Th e Group determines the classifi cation of its fi nancial assets at initial recognition. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profi t or loss, directly attributable transaction costs. All regular way purchases and sales of fi nancial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of fi nancial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Th e Group’s fi nancial assets include cash and cash equivalents, prepayments, deposits and other receivables, accounts receivable, notes receivable, pledged time deposits and available-for-sale investments. Subsequent measurement Th e subsequent measurement of fi nancial assets depends on their classifi cation as follows: Financial assets at fair value through profi t or loss Financial assets at fair value through profi t or loss include fi nancial assets held for trading. Financial assets are classifi ed as held for trading if they are acquired for the purpose of sale in the near term. Th is category includes derivative fi nancial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defi ned by HKAS 39. Derivatives, including separated embedded derivatives, are also classifi ed as held for trading unless they are designated as eff ective hedging instruments. Financial assets at fair value through profi t or loss are carried in the statement of fi nancial position at fair value with changes in fair value recognised in fi nance income or fi nance costs in the consolidated income statement. Th ese net fair value changes do not include any dividends or interest earned on these fi nancial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below. Th e Group evaluates its fi nancial assets at fair value through profi t or loss (held for trading) to assess whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these fi nancial assets due to inactive markets and management’s intent to sell them in the foreseeable future signifi cantly changes, the Group may elect to reclassify these fi nancial assets in rare circumstances. Th e reclassifi cation from fi nancial assets at fair value through profi t or loss to loans and receivables, available-for-sale fi nancial assets or held-to-maturity investments depends on the nature of the assets.

214 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Investments and other fi nancial assets (continued) Subsequent measurement (continued) Financial assets at fair value through profi t or loss (continued) Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profi t or loss. Th ese embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. Reassessment only occurs if there is a change in the terms of the contract that signifi cantly modifi es the cash fl ows that would otherwise be required. Loans and receivables Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Aft er initial measurement, such assets are subsequently measured at amortised cost using the eff ective interest rate method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the eff ective interest rate. Th e eff ective interest rate amortisation is included in fi nance costs in the income statement. Th e loss arising from impairment is recognised in the consolidated income statement in fi nance costs. Held-to-maturity investments Non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturity are classifi ed as held to maturity when the Group has the positive intention and ability to hold to maturity. Held-to-maturity investments are subsequently measured at amortised cost less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the eff ective interest rate. Th e eff ective interest rate amortisation is included in fi nance costs in the income statement. Th e loss arising from impairment is recognised in the income statement in fi nance costs. Available-for-sale fi nancial investments Available-for-sale fi nancial investments are non-derivative fi nancial assets in listed and unlisted equity securities. Equity investments classifi ed as available for sale are those which are neither classifi ed as held for trading nor designated at fair value through profi t or loss. Debt securities in this category are those which are intended to be held for an indefi nite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. Aft er initial recognition, available-for-sale fi nancial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment valuation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the income statement in other income, or until the investment is determined to be impaired, at which time the cumulative gain or loss is recognised in the income statement and removed from the available-for-sale investment valuation reserve. Interest and dividends earned are reported as interest income and dividend income, respectively and are recognised in the income statement as interest income. When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is signifi cant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses. Th e Group evaluates its available-for-sale fi nancial assets whether the ability and intention to sell them in the near term are still appropriate. When the Group is unable to trade these fi nancial assets due to inactive markets and management’s intent to do so signifi cantly changes in the foreseeable future, the Group may elect to reclassify these fi nancial assets in rare circumstances. Reclassifi cation to loans and receivables is permitted when the fi nancial assets meet the defi nition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or to maturity. Th e reclassifi cation to the held-to-maturity category is permitted only when the entity has the ability and intent to hold until the maturity date of the fi nancial asset. For a fi nancial asset reclassifi ed out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profi t or loss over the remaining life of the investment using the eff ective interest rate. Any diff erence between the new amortised cost and the expected cash fl ows is also amortised over the remaining life of the asset using the eff ective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassifi ed to the income statement.

Annual Report 2009 215 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Impairment of fi nancial assets Th e Group assesses at the end of each reporting period whether there is any objective evidence that a fi nancial asset or a group of fi nancial assets is impaired. A fi nancial asset or a group of fi nancial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred aft er the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash fl ows of the fi nancial asset or the group of fi nancial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing signifi cant fi nancial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash fl ows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For fi nancial assets carried at amortised cost, the Group fi rst assesses individually whether objective evidence of impairment exists for fi nancial assets that are individually signifi cant, or collectively for fi nancial assets that are not individually signifi cant. If the Group determines that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, it includes the asset in a group of fi nancial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not yet been incurred). Th e present value of the estimated future cash fl ows is discounted at the fi nancial asset’s original eff ective interest rate (i.e., the eff ective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current eff ective interest rate. Th e carrying amount of the asset is reduced either directly or through the use of an allowance account. Th e amount of the impairment loss is recognised in the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash fl ows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring aft er the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the income statement. Assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows discounted at the current market rate of return for a similar fi nancial asset. Impairment losses on these assets are not reversed. Available-for-sale fi nancial investments For available-for-sale fi nancial investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired. If an available-for-sale asset is impaired, an amount comprising the diff erence between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the consolidated income statement, is removed from other comprehensive income and recognised in the consolidated income statement. In the case of equity investments classifi ed as available for sale, objective evidence would include a signifi cant or prolonged decline in the fair value of an investment below its cost. Th e determination of what is “signifi cant” or “prolonged” requires judgement. “Signifi cant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the diff erence between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement – is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity instruments classifi ed as available for sale are not reversed through the income statement. Increases in their fair value aft er impairment are recognised directly in other comprehensive income.

216 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Derecognition of fi nancial assets A fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognised where: • the rights to receive cash fl ows from the asset have expired; • the Group has transferred it rights to receive cash fl ows from the asset, or has assumed an obligation to pay the received cash fl ows in full without material delay to a third party under a “pass-through” arrangement; • and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash fl ows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. Th e transferred asset and the associated liability are measured on a basis that refl ects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liabilities Initial recognition and measurement Financial liabilities within the scope of HKAS 39 are classifi ed as fi nancial liabilities at fair value through profi t or loss, loans and borrowings, or as derivatives designated as hedging instruments in an eff ective hedge, as appropriate. Th e Group determines the classifi cation of its fi nancial liabilities at initial recognition. All fi nancial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. Th e Group’s fi nancial liabilities include trade and other payables, amount due to the related parties and interest-bearing loans and borrowings. Subsequent measurement Th e measurement of fi nancial liabilities depends on their classifi cation as follows: Loans and borrowings Aft er initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the eff ective interest rate method unless the eff ect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the eff ective interest rate method amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the eff ective interest rate. Th e eff ective interest rate amortisation is included in fi nance costs in the income statement. Financial liabilities at fair value through profi t or loss Financial liabilities at fair value through profi t or loss include fi nancial liabilities held for trading and fi nancial liabilities designated upon initial recognition as at fair value through profi t or loss. Financial liabilities are classifi ed as held for trading if they are acquired for the purpose of sale in the near term. Th is category includes derivative fi nancial interments entered into by the Group that are not designated as hedging instruments in hedge relationships as defi ned by HKAS 39. Separated embedded derivatives are also classifi ed as held for trading unless they are designated as eff ective hedging instruments. Gains or losses on liabilities held for trading are recognised in the income statement. Th e net fair value gain or loss recognised in the income statement does not include any interest charged on these fi nancial liabilities. Derecognition of fi nancial liabilities A fi nancial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing fi nancial liability is replaced by another from the same lender on substantially diff erent terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as a derecognition of the original liability and a recognition of a new liability, and the diff erence between the respective carrying amounts is recognised in the consolidated income statement.

Annual Report 2009 217 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Off setting of fi nancial instruments Financial assets and fi nancial liabilities are off set and the net amount is reported in the statement of fi nancial position if, and only if, there is currently enforceable legal right to off set the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Fair value of fi nancial instruments Th e fair value of fi nancial instruments that are traded in active markets is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions) without any deduction for transaction costs. For fi nancial instruments where there is no active market, the fair value is determined using appropriate valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash fl ow analysis; and option pricing models. Derivative fi nancial instruments and hedge accounting Initial recognition and subsequent measurement Th e Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to hedge its foreign currency risk and interest rate risk, respectively. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives are taken directly to the consolidated income statement, except for the eff ective portion of cash fl ow hedges, which is recognised in other comprehensive income. For the purpose of hedge accounting, hedges are classifi ed as: – fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised fi rm commitment (except for foreign currency risk); or – cash fl ow hedges when hedging the exposure to variability in cash fl ows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognised fi rm commitment. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. Th e documentation includes identifi cation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s eff ectiveness of changes in the hedging instrument’s fair value in off setting the exposure to changes in the hedged item’s fair value or cash fl ows attributable to the hedged risk. Such hedges are expected to be highly eff ective in achieving off setting changes in fair value or cash fl ows and are assessed on an ongoing basis to determine that they actually have been highly eff ective throughout the fi nancial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair value hedges Th e change in the fair value of an interest rate hedging derivative is recognised in the consolidated income statement in fi nance costs. Th e change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognised in the consolidated income statement in fi nance costs. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the consolidated income statement over the remaining term to maturity. Eff ective rate amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the consolidated income statement. When an unrecognised fi rm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the fi rm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the consolidated income statement. Th e changes in the fair value of the hedging instrument are also recognised in the consolidated income statement.

218 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Derivative fi nancial instruments and hedge accounting (continued) Cash fl ow hedges Th e eff ective portion of the gain or loss on the hedging instrument is recognised directly in other comprehensive income in the hedging reserve, while any ineff ective portion is recognised immediately in the consolidated income statement in fi nance costs. Amounts recognised in other comprehensive income are transferred to the consolidated income statement when the hedged transaction aff ects profi t or loss, such as when hedged fi nancial income or fi nancial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-fi nancial asset or non-fi nancial liability, the amounts recognised in other comprehensive income are transferred to the initial carrying amount of the non-fi nancial asset or non-fi nancial liability. If the forecast transaction or fi rm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity are transferred to the consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised in other comprehensive income remain in other comprehensive income until the forecast transaction or fi rm commitment aff ects profi t or loss. Current versus non-current classifi cation Derivative instruments that are not designated and eff ective hedging instruments are classifi ed as current or non-current or separated into a current or non-current potion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash fl ows). • Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months aft er the end of the reporting period, the derivative is classifi ed as non-current (or separated into current and non-current portions) consistently with the classifi cation of the underlying item. • Embedded derivatives that are not closely related to the host contract are classifi ed consistently with the cash fl ows of the host contract. • Derivative instruments that are designated as, and are eff ective hedging instruments, are classifi ed consistent with the classifi cation of the underlying hedged item. Th e derivative instruments are separated into current portions and non-current portions only if a reliable allocation can be made. Inventories Inventories primarily consist of materials and supplies used for the repairs and maintenance of plant and equipment and daily operations. Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis. Th e materials and supplies are capitalised to plant and equipment when used for renewals or betterments of plant and equipment or recognised as expenses when used for daily operations. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal. Construction contracts Contract revenue comprises the agreed contract amount and appropriate amounts from variation orders, claims and incentive payments. Contract costs incurred comprise direct materials, the costs of subcontracting, direct labour and an appropriate proportion of variable and fi xed construction overheads. Revenue from fi xed price construction contracts is recognised on the percentage of completion method, measured by reference to stage of completion determined by surveys of work performed. Th e outcome of a construction contract can be estimated reliably when all the following conditions are satisfi ed: (a) total contract revenue can be measured reliably;

(b) it is probable that the economic benefi ts associated with the contract will fl ow to the entity; (c) both the contract costs to complete the contract and the stage of contract completion at the statement of fi nancial position date can be measured reliably; and (d) the contract costs attributable to the contract can be clearly identifi ed and measured reliably so that actual contract costs incurred can be compared with prior estimates. Provision is made for foreseeable losses as soon as they are anticipated by management. Where contract costs incurred to date plus recognised profi ts less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers. Where progress billings exceed contract costs incurred to date plus recognised profi ts less recognised losses, the surplus is treated as an amount due to contract customers.

Annual Report 2009 219 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Cash and cash equivalents For the purpose of the consolidated statement of cash fl ows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignifi cant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdraft s which are repayable on demand and form an integral part of the Group’s cash management. For the purpose of the statement of fi nancial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use. Provisions A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outfl ow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. When the eff ect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. Th e increase in the discounted present value amount arising from the passage of time is included in fi nance costs in the consolidated income statement. Income tax Income tax comprises current and deferred tax. Income tax relating to items recognised outside profi t or loss is recognised outside profi t or loss, either in other comprehensive income or directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates. Deferred tax is provided, using the liability method, on all temporary diff erences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary diff erences, except: • where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, aff ects neither the accounting profi t nor taxable profi t or loss; and • in respect of taxable temporary diff erences associated with investments in subsidiaries and interests in jointly-controlled entities, where the timing of the reversal of the temporary diff erences can be controlled and it is probable that the temporary diff erences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary diff erences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profi t will be available against which the deductible temporary diff erences, and the carryforward of unused tax credits and unused tax losses can be utilised, except: • where the deferred tax asset relating to the deductible temporary diff erences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, aff ects neither the accounting profi t nor taxable profi t or loss; and • in respect of deductible temporary diff erences associated with investments in subsidiaries and interests in jointly-controlled entities, deferred tax assets are only recognised to the extent that it is probable that the temporary diff erences will reverse in the foreseeable future and taxable profi t will be available against which the temporary diff erences can be utilised. Th e carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that suffi cient taxable profi t will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are off set if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

220 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. Revenue recognition Revenue is recognised when it is probable that the economic benefi ts will fl ow to the Group and when the revenue can be measured reliably, on the following bases: (a) income from day rate contracts is recognised as and when services have been performed; (b) income from construction contracts, on the percentage of completion basis, as further explained in the accounting policy for “Construction contracts” above; income from turnkey contracts is recognised to the extent of costs incurred until the specifi c turnkey depth and other contract requirements are met. When the turnkey depth and contract requirements are met, revenue on turnkey contracts is recognised based on the percentage of completion. Provisions for future losses on turnkey contracts are recognised when it becomes apparent that expenses to be incurred on a specifi c contract will exceed the revenue from that contract; (c) revenues from time charters and bareboat charters accounted for as operating leases under HKAS 17 are recognised on a straight- line basis over the rental periods of such charters, as service is performed. (d) reimbursables relate to purchases of supplies, equipment, personnel services and other services provided at the request of our customers, with the related expense recorded as an operating expense. Income is recognised when the goods are delivered or services rendered. (e) interest income, on an accrual basis using the eff ective interest method by applying the rate that discounts the estimated future cash receipt through the expected life of the fi nancial instrument to the net carrying amount of the fi nancial asset; and (f) dividend income when the shareholders’ right to receive payment has been established. Share-based payment transactions Th e Company operates a share appreciation rights plan (the “SAR Plan”) for its senior offi cers. Th e purpose of the SAR Plan is to provide incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Th e cost of cash-settled transactions is measured initially at fair value at the grant date using the Black-Scholes formula, taking into account the terms and conditions upon which the instruments were granted (Note 27). Th e fair value is expensed over the period until vesting with recognition of a corresponding liability. Th e liability is measured at the end of each reporting period up to and including the settlement date with changes in fair value recognised in the consolidated income statement. Retirement benefi ts costs Th e Group’s employees in Mainland China are required to participate in a central pension scheme operated by local municipal governments. Th e Group is required to contribute 19% to 22% of its payroll costs to the central pension scheme. Th e contributions are charged to the consolidated income statement as they become payable in accordance with the rules of the central pension scheme. Th e Group operates a defi ned benefi t pension plan which requires contributions to be made to a separately administered fund for its employees of COSL Drilling Europe AS, a wholly-owned subsidiary of the Company. Th e cost of providing benefi ts under the defi ned benefi t plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses for the plan at the end of the previous period exceeded 10% of the higher of the defi ned benefi t obligation and the fair value of plan assets at that date. Th ese gains or losses are recognised over the expected average remaining service periods of the employees participating in the plan. Th e past service costs are recognised as an expense on a straight-line basis over the average period until the benefi ts become vested. If the benefi ts are already vested immediately following the introduction of, or changes to, the pension plan, past service costs are recognised immediately. Th e defi ned benefi t asset or liability comprises the present value of the defi ned benefi t obligation less past service costs not yet recognised and less the fair value of plan assets out of which the obligations are to be settled. Th e value of any defi ned benefi t asset recognised is restricted to the sum of any past service costs not yet recognised and the present value of any economic benefi ts available in the form of refunds from the plan or reductions in the future contributions to the plan.

Annual Report 2009 221 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.4 Summary of signifi cant accounting policies (continued) Research and development costs All research costs are charged to the consolidated income statement as incurred. Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefi ts, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred. No development costs were capitalised during the year. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Th e capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specifi c borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Dividends Final and/or interim dividends proposed by the directors are classifi ed as a separate allocation of retained profi ts within the equity section of the statement of fi nancial position, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability. Foreign currencies Th ese fi nancial statements are presented in Renminbi (“RMB”), which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the fi nancial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates of exchange on the fi rst day of the month of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the end of the reporting period. All diff erences are taken to the consolidated income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Th e functional currencies of certain overseas subsidiaries and jointly-controlled entities are currencies other than the RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the end of the reporting period and their income statements are translated into RMB at the weighted average exchange rates for the year. Th e resulting exchange diff erences are recognised in other comprehensive income and in the cumulative translation reserve. On disposal of a foreign operation, the component of other comprehensive income, relating to that particular foreign operation is recognised in the consolidated income statement. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate. For the purpose of the consolidated statement of cash fl ows, the cash fl ows of overseas subsidiaries are translated into RMB at the exchange rates ruling at the dates of the cash fl ows. Frequently recurring cash fl ows of overseas subsidiaries which arise throughout the year are translated into RMB at the weighted average exchange rates for the year.

222 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

2.5 Signifi cant accounting judgements and estimates Signifi cant accounting estimates with uncertainty Th e preparation of the Group’s fi nancial statements requires management to make estimates and assumptions that aff ect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about those assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities aff ected in future. Th e most signifi cant judgements and estimates pertain to the determination of the estimated useful lives and impairment of property, plant and equipment, provisions for doubtful debts and inventories obsolescence, impairment of goodwill, impairment of available-for- sale fi nancial assets, deferred tax assets, defi ned benefi t pension plan as well as the judgement on the eligibility for the tax rate reduction as further described in Note 10 to the fi nancial statements. Actual amounts could diff er from those estimates and assumptions. (1) Th e estimated useful life and impairment of property, plant and equipment Th e estimated useful life of property, plant and equipment is based on the actual useful life of property, plant and property with similar characteristics and functions. If the useful life of these property, plant and equipment is less than previously estimated, the Group will accelerated the related depreciation or disposed of idle or obsolete property, plant and equipment. Th is requires management to use past experience in estimating the appropriate useful life. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell. Th is requires the management to make assumptions about the future cash fl ows and pre-tax discount rate and hence they are subject to uncertainty. As at 31 December 2009, a provision for impairment of the property, plant and equipment amounting to RMB819,889,000 (2008:Nil) was recognised. (2) Th e provisions for doubtful debts and inventories obsolescence Th e impairment of accounts receivable is determined by the management based on available objective evidence, e.g. it becoming probable that a debtor will enter bankruptcy or signifi cant fi nancial diffi culty of a debtor. Based on the Group’s accounting policy for inventories, management determines the provision for inventories obsolescence required by comparing the cost and net realisable for obsolete or slow-moving items. Th e impairment or provision amount is subject to management’s assessment at each statement of fi nancial position date, hence the provision amount is subject to uncertainty. At 31 December 2009, impairment losses of approximately RMB38,885,000 have been recognised for accounts receivable (2008: RMB48,733,000) and losses of approximately RMB1,070,000 have been recognised for inventories (2008: RMB3,853,000). (3) Impairment of goodwill Th e Group determines whether goodwill is impaired at least on an annual basis. Th is requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash fl ows from the cash-generating units and also the discount rate and hence they are subject to uncertainty. As at 31 December 2009, no impairment of goodwill was recognised (2008: Nil). (4) Impairment of available-for-sale fi nancial assets Th e Group classifi es certain assets as available-for-sale and recognises movements of their fair values in equity. When the fair value declines, management makes assumptions about the decline in value to determine whether there is an impairment that should be recognised in the consolidated income statement. At 31 December 2009, impairment losses of approximately RMB15,003,000 have been recognised for available-for-sale assets (2008: RMB106,508,000). (5) Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profi t will be available against which the losses can be utilised. Signifi cant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profi ts together with future tax planning strategies. Th e carrying value of deferred tax assets relating to recognised tax losses at 31 December 2009 was approximately RMB16,405,000 (2008: RMB29,300,000). Further details are contained in Note 28 to the fi nancial statements.

Annual Report 2009 223 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

3. Operating segment information For management purposes, the Group is organised into business units based on their services and has four reportable operating segments as follows: (a) the drilling services segment is engaged in the provision of oilfi eld drilling services; (b) the well services segment is engaged in the provision of logging and downhole services, such as drilling fl uids, directional drilling, cementing and well completion, sales of well chemical materials and well workovers; (c) the marine support and transportation services segment is engaged in the transportation of materials, supplies and personnel to off shore facilities, moving and positioning drilling structures, the transportation of crude oil and refi ned products and the transportation of methanol or other petrochemical products; and (d) the geophysical services segment is engaged in the provision of off shore seismic data collection, marine surveying and data processing services. Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profi t, which is a measure of adjusted profi t before tax from continuing operations. Th e adjusted profi t before tax from continuing operations is measured consistently with the Group’s profi t before tax from continuing operations except that interest income, fi nance costs, and exchange gains/(losses) are excluded from such measurement. Segment assets exclude certain cash and cash equivalents (funds managed by the corporate treasury), prepayments, deposits and other receivables as these assets are managed on a group basis. Segment liabilities exclude certain other payables, interest-bearing bank borrowings and long term bonds (funds managed by the corporate treasury) as these liabilities are managed on a group basis. Funds managed by the CNA group treasury were included in the drilling services segment. As such, the related cash and cash equivalents, interest-bearing bank borrowings and long term bonds were included in the drilling services segment. Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

224 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

3. Operating segment information (continued)

Year ended 31 December 2009

Marine support and Drilling Well transportation Geophysical Services Services Services Services Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue: Sales to external customers 9,891,714 4,416,698 2,171,330 1,398,912 17,878,654 Intersegment sales 1,249,655 144,599 59,088 50,231 1,503,573 Other revenue 36,071 6,445 14,503 38,080 95,099

11,177,440 4,567,742 2,244,921 1,487,223 19,477,326 Reconciliation: Elimination of intersegment sales (1,503,573)

17,973,753

Segment results 2,806,984 795,347 631,732 344,300 4,578,363 Exchange losses, net (92,686) Finance costs (786,430) Interest income 60,352

Proﬁ t before tax 3,759,599

Assets and liabilities: Segment assets 68,075,601 5,115,367 5,238,398 2,576,235 81,005,601 Elimination of intersegment receivables (23,320,127) Unallocated assets 3,091,044

Total assets 60,776,518

Segment liabilities 28,670,415 1,565,128 726,305 525,782 31,487,630 Elimination of intersegment liabilities (23,320,127) Unallocated liabilities 30,303,410

Total liabilities 38,470,913

Other segment information: Capital expenditure 6,062,823 760,092 924,719 665,704 8,413,338 Depreciation of property, plant and equipment and amortisation of intangible assets 1,945,678 406,354 275,096 238,038 2,865,166 Provision for impairment of accounts receivable 21,483 9,588 4,746 3,068 38,885 Provision for impairment of other receivables 2,510 1,120 555 358 4,543 Provision for impairment of inventories 591 264 131 84 1,070 Impairment provision for an available-for-sale investment 15,003 – – – 15,003 Impairment provision for property, plant and equipment 819,889 – – – 819,889 Share of proﬁ ts of jointly-controlled entities 59,440 52,087 (22,425) 21,162 110,264 Interests in jointly-controlled entities* 14,300 322,205 151,896 66,823 555,224

* Th e interests in jointly-controlled entities included interest in Premium Drilling and Atlantis Deepwater which were classifi ed as other current assets and other non-current liabilities amounting to RMB20.6 million and RMB6.3 million respectively.

Annual Report 2009 225 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

3. Operating segment information (continued)

Year ended 31 December 2008

Marine support and Drilling Well transportation Geophysical Services Services Services Services Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue: Sales to external customers 5,919,918 2,732,594 1,613,878 1,876,554 12,142,944 Intersegment sales 729,605 133,411 67,153 303,556 1,233,725 Other revenue 10,538 19,387 6,006 12,740 48,671

6,660,061 2,885,392 1,687,037 2,192,850 13,425,340 Reconciliation: Elimination of intersegment sales (1,233,725)

12,191,615

Segment results 2,178,775 523,482 556,153 587,786 3,846,196 Exchange losses, net (91,358) Finance costs (638,985) Interest income 191,433

Proﬁ t before tax 3,307,286

Assets and liabilities: Segment assets 43,332,092 4,228,050 4,543,962 2,213,388 54,317,492 Elimination of intersegment receivables (2,034,064) Unallocated assets 3,917,473

Total assets 56,200,901

Segment liabilities 27,492,436 1,363,824 537,118 600,665 29,994,043 Elimination of intersegment liabilities (2,034,064) Unallocated liabilities 8,443,078

Total liabilities 36,403,057

Other segment information: Capital expenditure 3,754,649 1,287,256 1,291,972 503,873 6,837,750 Depreciation of property, plant and equipment and amortisation of intangible assets 912,144 262,871 193,270 195,249 1,563,534 Provision for impairment of accounts receivable 761 351 207 47,414 48,733 Provision for impairment of other receivables 164 101 63 71 399 Provision for impairment of inventories 1,879 867 512 595 3,853 Impairment provision for an available-for-sale investment 106,508 – – – 106,508 Share of proﬁ ts of jointly-controlled entities 60,930 52,695 64,904 37,178 215,707 Interests in jointly-controlled entities 41,161 338,946 198,067 42,155 620,329

226 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

3. Operating segment information (continued) Geographical Information The Group mainly engages in the provision of drilling services, well services, marine support and transportation services and geophysical services in oﬀ shore China. Activities outside the PRC are mainly conducted in Indonesia, Australia, Mexico, Myanmar, Norway, Vietnam, Saudi Arabia, Dubai, Libya and Tunisia. In determining the Group’s geographical information, revenues and results are attributed to the segments based on the location of the Group’s customers. No further analysis of geographical information is presented for revenues as revenues generated from customers in other locations are individually less than 10% (2008: 10%), and approximately 72.1% (2008: approximately 75%) of the Group’s revenues are generated from customers in Mainland China. Th e following table presents revenue information for the Group’s geographical segments for the years ended 31 December 2009 and 2008.

Year ended 31 December 2009

Mainland China Other countries Total RMB’000 RMB’000 RMB’000

Segment revenue: Sales to external customers 12,889,651 4,989,003 17,878,654

Year ended 31 December 2008

Mainland China Other countries Total RMB’000 RMB’000 RMB’000

Segment revenue: Sales to external customers 9,099,541 3,043,403 12,142,944

A signiﬁ cant portion of the non-current assets are property, plant and equipment with high mobility which may have moved from Mainland China to foreign countries during the year and vice versa. As such, the necessary information is not available for the analysis of geographical segment for non-current assets. Information about a major customer Revenue generated from a major customer (including sales to a group of entities which are known to be under common control with that customer) is provided in Note 41.

Annual Report 2009 227 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

4. Revenue and other revenues Revenue, which is also the Group’s turnover, mainly represents the net invoiced value of oﬀ shore oilﬁ eld services rendered, net of sales surtaxes. An analysis of revenue and other revenues is as follows:

2009 2008 RMB’000 RMB’000

Revenue: Rendering of services* 17,708,484 12,062,412 Gross rental income 170,170 80,532

Total revenue 17,878,654 12,142,944

Other revenues: Gain on disposal of scrap equipment 168 2,112 Insurance claims received 52,140 19,895 Government subsidies 6,490 24,259 Others 36,301 2,405

Total other revenues 95,099 48,671

* Included in the balance was deferred revenue of RMB1,076,937,000 recognised during the year (Note 31).

5. Proﬁ t before tax Th e Group’s proﬁ t before tax is arrived at aft er charging/(crediting):

2009 2008 RMB’000 RMB’000

Auditors’ remuneration: Audit 15,570 10,922 Non-audit 6,262 11,572 Employee compensation costs (including directors’ remuneration (Note 7)): Wages, salaries and bonuses 2,153,116 1,706,715 Social security costs 398,069 294,281 Retirement beneﬁ ts and pensions 118,986 106,215 Share appreciation rights (Note 27) (553) (714)

2,669,618 2,106,497

228 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

5. Proﬁ t before tax (continued) Th e Group’s proﬁ t before tax is arrived at aft er charging/(crediting): (continued)

2009 2008 RMB’000 RMB’000

Depreciation of property, plant and equipment and amortisation of intangible assets 2,865,166 1,563,534 Loss on disposal of property, plant and equipment, net 19,017 53,429 Lease payments under operating leases in respect of land and buildings, berths and equipment 589,118 356,136 Impairment of property, plant and equipment 819,889 – Impairment of accounts receivable, net 38,885 48,733 Impairment of other receivables, net 4,543 399 Provision against inventories 1,070 3,853 Impairment of an available-for-sale investment 15,003 106,508 Repair and maintenance costs 609,441 420,257 Research and development costs, included in 197,228 144,553 Depreciation of property, plant and equipment 15,454 18,143 Employee compensation costs 26,444 1,349 Consumption of supplies, materials, fuel, services and others 149,324 123,023 Other operating expenses 6,006 2,038

6. Finance costs An analysis of ﬁ nance costs is as follows:

Group 2009 2008 RMB’000 RMB’000

Interest on bank borrowings Wholly repayable within ﬁ ve years 399,442 229,166 Wholly repayable aft er ﬁ ve years 408,158 197,396 Interest on long term bonds 284,134 158,634

Total interests 1,091,734 585,196 Less: Interest capitalised (264,943) (150,854)

826,791 434,342 Other ﬁ nance costs: Fair value losses on derivative instruments – 52,984 Realised (gains)/losses of derivative instruments (49,298) 151,659 Others 8,937 –

786,430 638,985

Annual Report 2009 229 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

7. Directors’ and supervisors’ remuneration Directors’ and supervisors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, is as follows:

Group 2009 2008 RMB’000 RMB’000

Fees 1,280 1,280 Other emoluments: Basic salaries, allowances and beneﬁ ts in kind 824 866 Bonuses 892 861 Share appreciation rights (Note 27) (212) (274) Pension scheme contributions 116 128

1,620 1,581

2,900 2,861

(a) Independent non-executive directors and supervisors Th e fees paid/payable to independent non-executive directors and independent supervisors during the year are as follows:

Group 2009 2008 RMB’000 RMB’000

Independent non-executive directors: Gordon C. K. Kwong 400 400 Simon X. Jiang 400 400 Alec Y.W.Tsui (i) 200 – Andrew Y. Yan (ii) 200 400

1,200 1,200 Independent supervisor: Wang Zhile (i) 40 – Zhang Dunjie (ii) 40 80

1,280 1,280

Th ere were no other emoluments payable to the independent non-executive directors and the independent supervisors during the year (2008: Nil).

Notes: (i) Elected on 3 June, 2009 (ii) Resigned on 3 June, 2009

230 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

7. Directors’ and supervisors’ remuneration (continued) (b) Executive directors, non-executive directors and supervisors

Salaries, Pension Share allowances and scheme appreciation beneﬁ ts in kind Bonuses contributions rights Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

2009 Executive directors: Yuan Guangyu (i) 91 261 6 (122) 236 Liu Jian (ii) 197 140 26 – 363 Li Yong 283 291 44 (90) 528

571 692 76 (212) 1,127

Non-executive directors: Fu Chengyu – – – – – Wu Mengfei – – – – –

– – – – –

Supervisors: Zhang Benchun (i) – – – – – Zhu Liebing (ii) – – – – – Yang Jinghong 253 200 40 – 493

253 200 40 – 493

Total 824 892 116 (212) 1,620

2008 Executive directors: Yuan Guangyu 390 375 50 (158) 657 Li Yong 271 289 41 (116) 485

661 664 91 (274) 1,142

Non-executive directors: Fu Chengyu – – – – – Wu Mengfei – – – – –

– – – – –

Supervisors: Zhang Benchun – – – – – Yang Jinghong 205 197 37 – 439

205 197 37 – 439

Total 866 861 128 (274) 1,581

Notes: (i) Resigned on 3 June, 2009 (ii) Elected on 3 June, 2009

Annual Report 2009 231 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

7. Directors’ and supervisors’ remuneration (continued) (b) Executive directors, non-executive directors and supervisors (continued) Share appreciation rights were granted to certain executive directors and supervisors in respect of their services to the Group, further details of which are included in the disclosures in Note 27 to the ﬁ nancial statements. Th ere was no arrangement under which a director or a supervisor waived or agreed to waive any remuneration during the year.

8. Five highest paid employees Th e fi ve highest paid employees during the year do not include any directors (2008: Nil), details of whose remuneration are set out in Note 7 to the fi nancial statements. Details of the remuneration of the fi ve (2008: fi ve) non-director, non-supervisor, highest paid employees for the year are as follows:

Group 2009 2008 RMB’000 RMB’000

Basic salaries, allowances and beneﬁ ts in kind 9,642 4,172 Bonuses 3,871 8,445 Shares appreciation rights – – Pension scheme contributions 739 152

14,252 12,769

Th e number of non-director, non-supervisor, highest paid employees whose remuneration fell within the following bands is as follows:

Number of employees 2009 2008

HK$2,000,001 to HK$2,500,000 – 1 HK$2,500,001 to HK$3,000,000 3 2 HK$3,000,001 to HK$3,500,000 1 1 HK$3,500,001 to HK$4,000,000 – 1 HK$4,000,001 to HK$4,500,000 1 –

5 5

232 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

9. Retirement benefi ts and pensions All the Group’s full-time employees in Mainland China are covered by a government-regulated pension scheme, and are entitled to an annual pension determined by their basic salaries upon their retirement. Th e PRC government is responsible for the pension liabilities to these retired employees. Th e Group is required to make annual contributions to the government-regulated pension at rates ranging from 19% to 22% of the employees’ basic salaries. Th e related pension costs are expensed as incurred. As part of the CNOOC group, the employees of the Group as at the time of the Reorganisation were entitled to the supplementary pension benefi ts (the “Supplementary Pension Benefi ts”) provided by CNOOC in addition to the benefi ts under the government- regulated pension fund described above. Th e Supplementary Pension Benefi ts were calculated based on factors including the number of years of service and salary level on the date of retirement of the employee. Following the Reorganisation, CNOOC agreed with the Group that the Supplementary Pension Benefi ts of the Group’s existing employees attributed to the period prior to the Company’s public listing in Hong Kong and the Supplementary Pension Benefi ts of the Group’s retired employees will continue to be assumed by CNOOC. As the obligations under the Supplementary Pension Benefi ts have been fully assumed by CNOOC, the costs of such Supplementary Pension Benefi ts have not been recorded in the Group’s fi nancial statements for the year ended 31 December 2009 (2008: Nil). Th e expenses attributed to the PRC government-regulated pension scheme are as follows:

Group 2009 2008 RMB’000 RMB’000

Contributions to the PRC government-regulated pension scheme 109,936 96,038

At 31 December 2009, the Group had no forfeited contributions available to reduce its contributions to the pension scheme in future years (2008: Nil). Th e Group has various pension plans for its employees who are located outside of Mainland China. Th e Group also has a defi ned benefi t scheme with a life insurance company to provide pension benefi ts for certain employees in Norway. Th e scheme provides entitlement to benefi ts based on future service from the commencement date of the scheme. Th ese benefi ts are principally dependent on an employee’s pension qualifying period, salary at retirement age and the size of benefi ts from the National Insurance Scheme. Full retirement pension will amount to approximately 70% of the scheme pension-qualifying income (limited to the stipulated Norwegian National Insurance Basic Amount). Th e scheme also includes entitlement to disability, spouses and children’s pensions. Th e retirement age under the scheme is 67 years. Th e Group may at any time make alterations to the terms and conditions of the pension scheme and undertake that they will inform the employees of any such changes. Th e benefi ts accruing under the scheme are funded obligations. All pension schemes are calculated in accordance with HKAS19. Changes in the pension obligations as a result of changed actuarial assumptions and variations between actual and anticipated return on pension funds, will be entered on the average remaining earnings period according to the “corridor” regulations.

Annual Report 2009 233 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

9. Retirement beneﬁ ts and pensions (continued)

Group 2009 2008 RMB’000 RMB’000

Pension cost Service cost 970 3,469 Interest cost 53 686 Estimated return on plan assets (50) (465) Administrative expenses 108 68 Amortisation of past service cost – – Amortisation of actuarial gains 711 474

Net pension cost 1,792 4,232 Social security tax 137 520

Total 1,929 4,752

Beneﬁ t assets/(obligation) Beneﬁ t obligation (2,257) (21,716) Plan assets 6,757 9,489

Funded status 4,500 (12,227) Social security tax (230) (1,724) Unamortised actuarial gains/(losses), past service cost (5,651) 8,287

Net obligation (1,381) (5,664)

Movements in the benefi t asset/(obligation) during the period Benefi t asset/(obligation), opening balance (5,664) – Acquisition of a subsidiary – (3,067) Benefi t expense (1,929) (4,752) Contributions 6,212 2,155

Beneﬁ t asset/(obligation) ending balance (1,381) (5,664)

Assumptions Estimated return on plan assets 6% 6% Discount rate 4% 5% Salary increase 4% 5% Increase of National Insurance 4% 4% Rate of pension increase 1.50%-3.75 % 1.75%-4.25 % Voluntary resignations 0-8% 0-8% Social security tax 14% 14% Analysis of the plan assets Th e asset allocation at the end of the period is set out below: Debt instruments 55% 52% Equity instruments 7% 27% Money market and similar 22% 9% Property 16% 12%

Total 100% 100%

234 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

10. Income tax Th e Group is subject to income tax on an entity basis on the profi t arising in or derived from the tax jurisdictions in which members of the Group are domiciled and operate. Th e Group is not liable for income tax in Hong Kong as it does not have assessable income currently sourced from Hong Kong. Th e New Corporate Income Tax (“CIT”) Law eff ective from 1 January 2008 introduces the unifi cation of the income tax rate for domestic-invested and foreign-invested enterprises at 25%. In addition, the new detailed Implementation Rules of the Corporate Income Tax Law (“CITLIR”) were approved on 28 November 2007 and are eff ective from 1 January 2008 onwards. Th e State Administration of Taxation Circular Guoshuifa [2008] Number 17 confi rms that enterprises which had been recognised as advanced technology enterprises prior to 1 January 2008 should pay provisional CIT at the rate of 25% pending a re-recognition process under the New CIT Law. On 30 October 2008, the Company was certifi ed as an advanced technology enterprise by Tianjin Science and Technology Commission, Tianjin Ministry of Finance, Tianjin State Administration of Taxation (the “TSAT”), and Tianjin Local Taxation Bureau, which is eff ective for three years. Further, the Company obtained the approval from Tianjin Off shore Oil Tax Bureau of Tianjin Provincial Offi ce of the TSAT in 2010. According to the Circular Jinguoshuihaishuijianmian [2009] Number 2, the corporate income tax rate was approved to be 15%. Consequently, the management considers it is appropriate to use the rate of 15% to accrue for the income tax liability of the Company for the year ended 31 December 2009 (2008: 15%). Certain overseas subsidiaries of the Group with permanent establishment status in the PRC are subject to deemed income tax calculated at 2.5% (2008: 2.5%) of service income generated from drilling activities in the PRC. Th e Group’s drilling activities in Indonesia are mainly subject to a corporate income tax of 28% (2008: progressive rate ranging from 10% to 30%). Th e Group’s drilling activities in Australia are subject to income tax of 30% (2008: 30%) based on its taxable profi t generated. Th e Group’s drilling activities in Myanmar are subject to income tax of 3% (2008: 3%) based on its gross service income generated from its drilling activities in Myanmar. Th e Group’s drilling activities in Mexico are subject to the higher of income tax rate of 28% or business fl at tax of 17% (2008: 28% and 16.5%, respectively). Th e Group’s activities in Norway are mainly subject to a corporate income tax of 28% (2008: 28%). Th e Group’s activities in Vietnam are subject to withholding tax of 10% on income derived from the provision of drilling services (2008: 10%). Th e Group’s drilling activities in Libya are subject to income tax of 44% based on its deemed profi t or at 18% based on its gross income (2008: 44% or 18%, respectively). Th e Group’s drilling activities in Tunisia are subject to income tax of 35% (2008: not applicable), based on its taxable income. Th e Group’s taxes pertaining to drilling activities in Saudi Arabia are borne by the customer. Th e Group’s drilling activities in Dubai are not subject to any income tax. An analysis of the Group’s provision for tax is as follows:

Group 2009 2008 RMB’000 RMB’000

Hong Kong proﬁ ts tax – – Overseas income taxes: Current income taxes 116,811 67,928 Deferred income taxes 10,922 65,187 PRC corporate income taxes: Current income taxes 412,487 25,671 Deferred income taxes 84,062 46,259

Total tax charge for the year 624,282 205,045

Annual Report 2009 235 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

10. Income tax (continued) A reconciliation of the tax expense applicable to profi t before tax using the statutory rate for Mainland China where the Company and its jointly-controlled entities are domiciled to the tax expense at the eff ective tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to the eff ective tax rate, are as follows:

2009 2008 RMB’000 % RMB’000 %

Profi t before tax 3,759,599 3,307,286 Tax at the statutory tax rate of 25% (2008: 25%) 939,900 25.0 826,822 25.0 Tax refund/reduction as an advanced technology enterprise – current year (310,687) (8.3) (220,793) (6.7) – prior year – – (524,005) (15.8) Income not subject to tax (1,008,967) (26.8) (145,377) (4.4) Expenses not deductible for tax 556,155 14.8 40,994 1.2 Tax benefi t for qualifying research and development expense (28,761) (0.8) (14,735) (0.4) Eff ect of diff erent tax rates for overseas subsidiaries (134,124) (3.6) 63,165 1.9 Unrecognised tax losses – – 464,173 14.0 Utilisation of previous unrecognised tax losses (475,416) (12.6) – – Translation adjustment* 1,057,765 28.1 (311,388) (9.4) Others 28,417 0.8 26,189 0.8

Total tax charge at the Group’s eﬀ ective rate 624,282 16.6 205,045 6.2

Th e share of tax attributable to jointly-controlled entities amounting to approximately RMB62,091,000 (2008: RMB58,277,000) is included in “Share of proﬁ ts of jointly-controlled entities” on the face of the consolidated income statement. * Translation adjustment includes the tax eff ect of diff erences arising from foreign exchange eff ects to Norwegian Krone (“NOK”), which is the basis for taxation of some group companies. Th e translation adjustment mainly relates to diff erences between the taxable income under the Norwegian Krone tax basis and the US dollar functional currency income statement of such group companies.

11. Profi t attributable to owners of the parent Th e consolidated profi t attributable to owners of the parent for the year ended 31 December 2009 includes a profi t of approximately RMB3,352,684,000 (2008: RMB3,145,684,000) which has been dealt with in the fi nancial statements of the Company (Note 35(b)).

236 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

12. Dividends

2009 2008 RMB’000 RMB’000

Proposed ﬁ nal dividend – RMB0.14 per ordinary share (2008: RMB0.14 per ordinary share) 629,345 629,345

Th e proposed fi nal dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting. Cash dividends to shareholders in Hong Kong will be paid in Hong Kong dollars. Under the PRC Company Law and the Company’s articles of association, net profi t aft er tax as reported in the PRC statutory fi nancial statements can only be distributed as dividends aft er allowance has been made for the following: (i) making up prior years’ cumulative losses, if any; (ii) allocations to the statutory common reserve fund of at least 10% of aft er-tax profi t, until the fund aggregates 50% of the Company’s registered capital. For the purpose of calculating the transfer to the reserves, the profi t aft er tax shall be the amount determined under the PRC accounting principles and fi nancial regulations. Transfer to this reserve must be made before any distribution of dividends to shareholders. Th e statutory common reserve can be used to off set previous years’ losses, if any, and part of the statutory common reserve can be capitalised as the Company’s share capital provided that the amount of such reserve remaining aft er the capitalisation shall not be less than 25% of the registered capital of the Company; (iii) allocations to the discretionary common reserve if approved by the shareholders. Th e discretionary common reserve can be used to off set prior years’ losses, if any, and can be capitalised as the Company’s share capital. In accordance with the articles of association of the Company, the net profi t aft er tax of the Company for the purpose of profi t distribution will be deemed to be the lesser of (i) the net profi t determined in accordance with the accounting principles generally accepted in PRC and fi nancial regulations and (ii) the net profi t determined in accordance with Hong Kong Financial Reporting Standards. Pursuant to the State Administration of Taxation Circular Guoshuihan [2008] Number 897, the Company is required to withhold a 10% enterprise income tax when it distributes dividends to its non-resident enterprise shareholders out of profi t earned in 2008 and beyond. In respect of all shareholders whose names appear on the Company’s register of members who are not individuals, which are considered as non-resident enterprise shareholders, the Company will distribute the dividend aft er deducting enterprise income tax of 10%.

13. Earnings per share attributable to ordinary equity holders of the parent Th e calculation of basic earnings per share amounts is based on the proﬁ t for the year attributable to ordinary equity holders of the parent of approximately RMB3,135,317,000 (2008: RMB3,102,241,000), and the weighted average number of ordinary shares of 4,495,320,000 (2008: 4,495,320,000) in issue during the year. Th ere were no potentially diluting events for the years ended 31 December 2009 and 2008.

Annual Report 2009 237 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

14. Property, plant and equipment Group

31 December 2009

Tankers and Machinery and Motor Construction vessels Drilling rigs equipment vehicles Buildings in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2008 and at 1 January 2009 (Restated): Cost 6,854,488 23,001,543 6,937,370 70,761 39,089 15,428,951 52,332,202 Accumulated depreciation (3,674,125) (5,773,760) (2,492,421) (40,229) (6,456) – (11,986,991)

Net carrying amount 3,180,363 17,227,783 4,444,949 30,532 32,633 15,428,951 40,345,211

At 1 January 2009, net of accumulated depreciation 3,180,363 17,227,783 4,444,949 30,532 32,633 15,428,951 40,345,211

Additions – 283,420 644,022 2,156 – 7,478,546 8,408,144 Depreciation provided during the year (316,126) (1,327,819) (1,120,587) (7,514) (2,089) – (2,774,135) Disposals/write-oﬀ s (17,260) (668) (10,760) (2,653) (347) – (31,688) Transfers from/(to) construction in progress (“CIP”) 1,978,119 4,872,259 1,020,722 8,726 32,018 (7,911,844) – CIP transfers to intangible assets – – – – – (18,570) (18,570) Impairment – – – – – (819,889) (819,889) Exchange realignment (47) (12,321) (168) (2) – (9,993) (22,531)

At 31 December 2009, net of accumulated depreciation and impairment 4,825,049 21,042,654 4,978,178 31,245 62,215 14,147,201 45,086,542

At 31 December 2009 Cost 8,608,113 28,129,569 8,474,399 77,860 70,439 14,966,585 60,326,965 Accumulated depreciation and impairment (3,783,064) (7,086,915) (3,496,221) (46,615) (8,224) (819,384) (15,240,423)

Net carrying amount 4,825,049 21,042,654 4,978,178 31,245 62,215 14,147,201 45,086,542

238 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

14. Property, plant and equipment (continued) Group

31 December 2008

Tankers and Machinery and Motor Construction vessels Drilling rigs equipment vehicles Buildings in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Restated) (Restated) (Restated)

At 31 December 2007 and at 1 January 2008: Cost 6,022,002 6,695,650 4,663,866 62,185 38,882 3,665,892 21,148,477 Accumulated depreciation (3,478,551) (4,694,426) (1,821,661) (32,040) (3,794) – (10,030,472)

Net carrying amount 2,543,451 2,001,224 2,842,205 30,145 35,088 3,665,892 11,118,005

At 1 January 2008, net of accumulated depreciation 2,543,451 2,001,224 2,842,205 30,145 35,088 3,665,892 11,118,005 Acquisition of a subsidiary (Note 36) – 11,945,825 7,025 – – 12,235,698 24,188,548 Additions – 37,765 1,056,548 9,008 207 5,466,294 6,569,822 Depreciation provided during the year (243,553) (527,853) (720,956) (10,071) (2,662) – (1,505,095) Disposals/write-oﬀ s (44,869) – (19,822) (432) – – (65,123) Transfers from/(to) construction in progress (“CIP”) 931,223 3,739,340 1,285,055 2,210 – (5,957,828) – CIP transfers to intangible assets – – – – – (8,497) (8,497) CIP transfers to a jointly-controlled entity – – – – – (5,636) (5,636) Exchange realignment (5,889) 31,482 (5,106) (328) – 33,028 53,187

At 31 December 2008, net of accumulated depreciation 3,180,363 17,227,783 4,444,949 30,532 32,633 15,428,951 40,345,211

At 31 December 2008 Cost 6,854,488 23,001,543 6,937,370 70,761 39,089 15,428,951 52,332,202 Accumulated depreciation (3,674,125) (5,773,760) (2,492,421) (40,229) (6,456) – (11,986,991)

Net carrying amount 3,180,363 17,227,783 4,444,949 30,532 32,633 15,428,951 40,345,211

Impairment of property, plant and equipment An impairment loss of US$120,000,000 (approximately RMB819,889,000) was recognised in June 2009 when preparing the 2009 interim fi nancial information of the Group to reduce the carrying amount of certain semi-submersible rigs under construction to their respective recoverable amounts, primarily arising from the adverse change of economic environment since late 2008 and the delay in the delivery of the semi-submersible rigs under construction. Th e management of the Company performed a further impairment assessment when preparing these fi nancial statements. Based on the assessment, the management of the Company believes that no further provision for impairment loss is required. Th e impairment loss has been classifi ed under the segment of drilling services in Note 3 to the fi nancial statements. Th e recoverable amount was calculated based on the respective asset’s value in use and was determined at the cash generating unit level. In determining the value in use for the cash generating unit, cash fl ows were discounted at a rate of 9.5% on a pre-tax basis.

Annual Report 2009 239 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

14. Property, plant and equipment (continued) Company

31 December 2009

Tankers and Machinery and Motor Construction vessels Drilling rigs equipment vehicles Buildings in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2008 and at 1 January 2009 Cost 6,784,030 8,664,148 6,660,022 66,665 35,186 4,217,663 26,427,714 Accumulated depreciation (3,658,165) (5,028,160) (2,426,573) (37,762) (5,426) – (11,156,086)

Net carrying amount 3,125,865 3,635,988 4,233,449 28,903 29,760 4,217,663 15,271,628

At 1 January 2009, net of accumulated depreciation 3,125,865 3,635,988 4,233,449 28,903 29,760 4,217,663 15,271,628

Additions – – 563,399 2,027 – 5,491,086 6,056,512 Depreciation provided during the year (307,906) (394,145) (1,060,167) (9,086) (1,917) – (1,773,221) CIP transfers to intangible assets – – – – – (18,570) (18,570) Disposals/write-oﬀ s (17,260) (81) (10,760) (121) – – (28,222) Transfers from/(to) CIP 1,978,119 1,253,317 1,020,343 8,726 32,018 (4,292,523) –

At 31 December 2008, net of accumulated depreciation 4,778,818 4,495,079 4,746,264 30,449 59,861 5,397,656 19,508,127

At 31 December 2009, net of accumulated depreciation Cost 8,537,721 9,910,814 8,116,944 76,171 67,203 5,397,656 32,106,509 Accumulated depreciation (3,758,903) (5,415,735) (3,370,680) (45,722) (7,342) – (12,598,382)

Net carrying amount 4,778,818 4,495,079 4,746,264 30,449 59,861 5,397,656 19,508,127

240 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

14. Property, plant and equipment (continued) Company

31 December 2008

Tankers and Machinery and Motor Construction vessels Drilling rigs equipment vehicles Buildings in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2007 and at 1 January 2008: Cost 5,944,977 6,695,650 4,504,987 60,525 34,997 3,665,854 20,906,990 Accumulated depreciation (3,470,269) (4,694,426) (1,775,073) (31,376) (3,147) – (9,974,291)

Net carrying amount 2,474,708 2,001,224 2,729,914 29,149 31,850 3,665,854 10,932,699

At 1 January 2008, net of accumulated depreciation 2,474,708 2,001,224 2,729,914 29,149 31,850 3,665,854 10,932,699 Additions – – 933,443 5,865 189 4,746,406 5,685,903 Depreciation provided during the year (235,197) (333,733) (699,321) (7,889) (2,279) – (1,278,419) CIP transfers to intangible assets – – – – – (8,497) (8,497) Disposals/write-oﬀ s (44,869) – (14,757) (432) – – (60,058) Transfers from/(to) CIP 931,223 1,968,497 1,284,170 2,210 – (4,186,100) –

At 31 December 2008, net of accumulated depreciation 3,125,865 3,635,988 4,233,449 28,903 29,760 4,217,663 15,271,628

At 31 December 2008, net of accumulated depreciation Cost 6,784,030 8,664,148 6,660,022 66,665 35,186 4,217,663 26,427,714 Accumulated depreciation (3,658,165) (5,028,160) (2,426,573) (37,762) (5,426) – (11,156,086)

Net carrying amount 3,125,865 3,635,988 4,233,449 28,903 29,760 4,217,663 15,271,628

Annual Report 2009 241 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

15. Goodwill

Group 2009 RMB’000

Cost at 1 January 2009, net of accumulated impairment 4,604,785 Exchange realignment (4,312)

Cost and carrying value at 31 December 2009 4,600,473

Cost 4,604,785 Exchange realignment (4,312)

Net carrying amount 4,600,473

2008 RMB’000 (Restated)

Cost at 1 January 2008, net of accumulated impairment – Acquisition of a subsidiary 4,596,484 Exchange realignment 8,301

Cost and carrying value at 31 December 2008 4,604,785

Cost 4,596,484 Exchange realignment 8,301

Net carrying amount 4,604,785

Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to the Drilling services cash-generating unit, which is reportable in the drilling segment, for impairment testing. Th e recoverable amount of the cash-generating unit has been determined based on a value in use calculation using cash fl ow projections based on fi nancial budgets covering a fi ve-year period approved by senior management. Th e pre-tax discount rate applied to the cash fl ow projections is 9.5%, and the cash fl ow over a fi ve-year period is extrapolated using a constant growth rate. Key assumptions were used in the value in use calculation of the cash-generating unit for 31 December 2009. Th e following describes the key assumption on which management has based its cash fl ow projections to undertake impairment testing of goodwill. Discount rates – Th e discount rates used refl ect specifi c risks relating to the relevant unit. Th e values assigned to key assumptions which includes rig utilisation rate, day rate and projected expenses are consistent with external information sources and historical trends.

242 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

16. Intangible assets Group

31 December 2009

Prepaid Management land lease system & Contract payments soft ware value Total RMB’000 RMB’000 RMB’000 RMB’000

Cost at 1 January 2009, net of accumulated amortisation 261,281 180,641 81,877 523,799

Additions – 5,194 – 5,194 Transferred from CIP – 18,570 – 18,570 Amortisation provided during the year (5,306) (31,617) (54,108) (91,031) Exchange realignment – (113) (53) (166)

At 31 December 2009 255,975 172,675 27,716 456,366

At 31 December 2009: Cost 262,188 226,077 122,880 611,145 Accumulated amortisation (6,213) (53,402) (95,164) (154,779)

Net carrying amount 255,975 172,675 27,716 456,366

31 December 2008

Prepaid Management land lease system & Contract payments soft ware value Total RMB’000 RMB’000 RMB’000 RMB’000

Cost at 1 January 2008, net of accumulate amortisation 4,348 47,774 – 52,122 Additions 257,518 10,410 – 267,928 Transferred from CIP – 8,497 – 8,497 Acquisition of a subsidiary (Note 36) – 130,332 122,702 253,034 Amortisation provided during the year (585) (16,736) (41,118) (58,439) Exchange realignment – 364 293 657

At 31 December 2008 261,281 180,641 81,877 523,799

At 31 December 2008: Cost 262,188 202,435 122,995 587,618 Accumulated amortisation (907) (21,794) (41,118) (63,819)

Net carrying amount 261,281 180,641 81,877 523,799

Annual Report 2009 243 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

16. Intangible assets (continued) Company

31 December 2009

Prepaid land lease payments Soft ware Total RMB’000 RMB’000 RMB’000

Cost at 1 January 2009, net of accumulated amortisation 261,281 53,264 314,545 Additions – 2,478 2,478 Transferred from CIP – 18,570 18,570 Amortisation provided during the year (5,306) (18,373) (23,679)

At 31 December 2008 255,975 55,939 311,914

At 31 December 2008: Cost 262,188 92,829 355,017 Accumulated amortisation (6,213) (36,890) (43,103)

Net carrying amount 255,975 55,939 311,914

31 December 2008

Prepaid land lease payments Soft ware Total RMB’000 RMB’000 RMB’000

Cost at 1 January 2008, net of accumulated amortisation 4,348 47,774 52,122 Additions 257,518 10,410 267,928 Transferred from CIP – 8,497 8,497 Amortisation provided during the year (585) (13,417) (14,002)

At 31 December 2008 261,281 53,264 314,545

At 31 December 2008: Cost 262,188 71,791 333,979 Accumulated amortisation (907) (18,527) (19,434)

Net carrying amount 261,281 53,264 314,545

244 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

17. Investments in subsidiaries

Company 2009 2008 RMB’000 RMB’000

Unlisted shares, at cost 6,852,413 6,841,088

Particulars of the principal subsidiaries are as follows:

Place and date of Percentage of incorporation/ Nominal value equity directly registration of issued and attributable to Principal Name of entity and operations paid-up capital the Group activities Direct Indirect

COSL America Inc. United States US$100,000 100 – Sale of logging of America equipment 2 November 1994 China Oilﬁ eld Services British Virgin US$1 100 – Investment (BVI) Limited Islands holding 19 March 2003 COSL (Labuan) Malaysia US$1 – 100 Provision of Company Limited 11 April 2003 drilling services in Indonesia COSL Services Southeast British Virgin US$1 – 100 Investment Asia (BVI) Limited Islands holding 29 May 2003 COSL Chemicals (Tianjin), Tianjin, PRC RMB20,000,000 100 – Provision of Ltd. (formerly known as 7 September 1993 drilling ﬂ uids Tianjin Jinlong services Petro-Chemical Company Ltd.) COSL (Australia) Pty Ltd. Australia A$10,000 – 100 Provision of 11 January 2006 drilling services in Australia

Annual Report 2009 245 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

17. Investments in subsidiaries (continued)

COSL Hong Kong Hong Kong HK$ 100 – Investment holding International Limited 3 December 2007 2,227,770,001 COSL Norwegian AS Norway NOK – 100 Investment holding 23 June 2008 1,541,328,656 COSL Drilling Europe Norway NOK – 100 Provision of drilling AS (“CDE”)* (formerly 21 January 2005 1,494,415,487 services known as Awilco Off shore ASA) COSL Drilling Singapore US$1 100 Management of Pan-Pacifi c Ltd. 13 April 2009 jack-up drilling rigs COSL Drilling Pan-Pacifi c Malaysia US$1 100 Management of (Labuan) Ltd. 4 April 2009 jack-up drilling rigs

Th e above table lists the principal subsidiaries of the Company, which, in the opinion of the directors, principally aﬀ ected the results for the period or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length. * CDE was acquired through COSL Norwegian AS on 29 September 2008 as further described in Note 36 to the fi nancial statements.

18. Interests in jointly-controlled entities

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Unlisted investments, at cost – – 129,330 129,330 Share of net assets 531,635 589,449 – – Due from jointly-controlled entities 9,398 30,976 9,398 4,281 Due to jointly-controlled entities (109) (96) – (96)

540,924 620,329 138,728 133,515

Th e amounts due from and due to jointly-controlled entities are unsecured, interest-free and have no ﬁ xed terms of repayment. Th e carrying amounts of these amounts due from and due to jointly-controlled entities approximate to their fair values.

246 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

18. Interests in jointly-controlled entities (continued) Particulars of the principal jointly-controlled entities are as follows:

Place and date Nominal value of incorporation/ Percentage of of issued and registration and Ownership Proﬁ t Principal Name paid up capital operations interest sharing activities

China France Bohai Geoservices US$6,650,000 Tianjin, PRC 50 50 Provision of Co., Ltd. (“China France”) 30 November 1983 logging services China Nanhai-Magcobar Mud RMB4,640,000 Shenzhen, PRC 60(a) 60 Provision of Corporation Ltd. (“Magcobar”) 25 October 1984 drilling fl uids services CNOOC-OTIS Well Completion US$2,000,000 Tianjin, PRC 50 50 Provision of well Services Ltd. (“CNOOC-OTIS”) 14 April 1993 completion services China Petroleum Logging-Atlas US$2,000,000 Shenzhen, PRC 50 50 Provision of Cooperation Service Company 10 May 1984 logging services (“Logging-Atlas”) China Off shore Fugro Geo Solutions US$1,720,790 Shenzhen, PRC 50 50 Provision of (Shenzhen) Company Ltd. 24 August 1983 geophysical services (“China Off shore Fugro”) Eastern Marine Services Ltd. HK$1,000,000 Hong Kong 51(a) 51 Marine (“Eastern Marine”) 10 March 2006 transportation services PT Tritunggal Sinergy US$700,000 Indonesia 55(a) 55 Provision of Company Ltd (“PTTS”) 30 December 2004 oilfi eld repair services COSL-Expro Testing Services (Tianjin) US$5,000,000 Tianjin, PRC 50 50 Provision of well Company Ltd. (“COSL-Expro”) 28 February 2007 testing services Atlantis Deepwater Orient Ltd. HK$1,000 Hong Kong 50 50 Provision of artifi cial (“Atlantis Deepwater”) 28 August 2006 buoyant seabed unit services Premium Drilling AS (“PDAS”) NOK100,000 Norway 50(b) 50 Management of 1 June 2005 jack-up drilling rigs

All of the above investments in jointly-controlled entities are directly held by the Company except for Eastern Marine, PTTS and Atlantis Deepwater, which are indirectly held through China Oilﬁ eld Services (BVI) Limited, and Premium Drilling which is indirectly held through COSL Drilling Europe AS.

Annual Report 2009 247 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

18. Interests in jointly-controlled entities (continued) (a) In the opinion of the directors, the Company does not have control over Magcobar’s, PTTS’s and Eastern Marine’s fi nancial and operating decisions, and accordingly, the fi nancial statements of Magcobar, PTTS and Eastern Marine have not been incorporated into the Group’s consolidated fi nancial statements as subsidiaries. Th e fi nancial statements of Magcobar, PTTS and Eastern Marine have been dealt with in the Group’s consolidated fi nancial statements using the equity accounting method. (b) Premium Drilling consists of Premium Drilling AS, Premium Drilling Inc. and Premium Drilling (Cayman) Ltd.. Premium Drilling was set up by COSL Drilling Europe AS and Sinvest AS (formerly known as Sinvest ASA) in June 2005 to manage the operations of jack-up drilling rigs. Th e joint venture is accounted for using the equity accounting method and was acquired through the acquisition of CDE as further described in Note 36 to the fi nancial statements. Th e following table illustrates the summarised fi nancial information of the Group’s jointly-controlled entities:

2009 2008 RMB’000 RMB’000

Share of the jointly-controlled entities’ assets and liabilities: Current assets 647,513 763,533 Non-current assets 259,560 318,829 Current liabilities (527,518) (508,956) Non-current liabilities (29,412) (56,363)

Net assets* 350,143 517,043

Share of the jointly-controlled entities’ results: Revenue 910,714 981,761 Other revenues 4,591 13,481 Total expenses (742,950) (721,258) Tax (62,091) (58,277)

Share of proﬁ ts of jointly-controlled entities 110,264 215,707

* Th e share of the jointly-controlled entities’ net assets includes the net liabilities of Premium Drilling and Atlantis Deepwater as at 31 December 2009, amounting to approximately RMB94,241,000 (2008: RMB72,406,000) and RMB36,399,000 (2008: Nil), which are classifi ed as other current assets and other non-current liabilities in the consolidated statement of fi nancial position respectively, as further described in Note 24 and Note 33 to the fi nancial statements.

248 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

19. Available-for-sale investments

2009 2008 RMB’000 RMB’000

Unlisted investments, at acquired cost 100 –

Listed equity investment, at acquired cost 140,366 140,366 Less: Provision for impairment (121,511) (106,508) Exchange realignment 426 460

Net carrying amount, at fair value 19,281 34,318

Total 19,381 34,318

Th e non-current available-for-sale investments primarily consist of an investment in a listed equity security, Petrojack ASA. Fair value equals the listed price at the year end. Impairment losses of approximately RMB15,003,000 have been recognised for the available- for-sale investment during the current period (2008: RMB106,508,000). Th e unlisted equity investment is an investment in Atlantis Deepwater Technology Holding AS.

20. Inventories

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Gross inventory 837,313 796,565 634,006 666,000 Less: Provisions (16,764) (15,694) (16,764) (15,694)

820,549 780,871 617,242 650,306

Inventories consist of materials and supplies.

21. Prepayments, deposits and other receivables

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Prepayments 528,233 1,281,549 489,374 1,230,300 Deposits 54,316 76,407 54,311 76,407 Other receivables 180,282 150,688 933,490 469,408

762,831 1,508,644 1,477,175 1,776,115 Less: Provision for impairment of other receivables (7,331) (2,788) (7,331) (2,788)

755,500 1,505,856 1,469,844 1,773,327

Annual Report 2009 249 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

22. Accounts receivable Th e general credit terms of the Group range from 30 to 45 days upon the issuance of invoices. Th e Group’s accounts receivable relate to a large number of diversiﬁ ed customers. Other than the accounts receivable related to the CNOOC Group and the CNOOC Limited Group as disclosed below, there is no signiﬁ cant concentration of credit risk of the Group’s accounts receivable. All accounts receivable are non-interest-bearing. An aged analysis of the accounts receivable as at the end of the reporting period, based on the invoiced date, is as follows:

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Outstanding balances aged: Within one year 3,815,901 2,777,864 4,267,417 3,364,184 One to two years 13,700 7,751 13,700 1,640 Two to three years 5,697 278 196 – Over three years 2,440 2,441 858 858

3,837,738 2,788,334 4,282,171 3,366,682 Less: Provision for impairment of accounts receivable (92,191) (53,309) (85,108) (50,073)

3,745,547 2,735,025 4,197,063 3,316,609

Th e movements in provision for impairment of accounts receivable are as follows:

Group 2009 2008 RMB’000 RMB’000

At 1 January 53,309 4,798 Impairment losses recognised 88,211 49,215 Impairment losses reversed (49,326) (482) Exchange realignment (3) (222)

At 31 December 92,191 53,309

Th e provision for impairment of accounts receivable as at 31 December 2009 mainly represents provision against individually impaired receivables with an aggregate carrying amount of approximately RMB181,881,000 (2008: RMB58,451,000). Th e Group does not hold any collateral or other credit enhancements over these balances. As at 31 December 2008 and 2009, the Group does not have any signifi cant accounts receivable past due but not impaired. Receivables that were neither past due nor impaired relate to a large number of diversifi ed customers for whom there was no recent history of default. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a signifi cant change in credit quality and the balances are still considered fully recoverable. Th e Group does not hold any collateral or other credit enhancements over these balances. Included in the Company’s accounts receivable at 31 December 2009 was an amount due from its subsidiaries of approximately RMB1,113,885,000 (2008: RMB1,498,958,000) which is unsecured, non-interest-bearing and repayable on similar credit terms to those off ered to the major customers of the Group.

250 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

23. Notes receivable

Group and Company 2009 2008 RMB’000 RMB’000

Trade acceptances 427,108 338,270 Banker’s acceptances 2,550 16,600

429,658 354,870

24. Other current assets

Group 2009 2008 RMB’000 RMB’000

Negative interest in a jointly-controlled entity (Note 18) (94,241) – Due to a jointly-controlled entity (32,354) – Due from a jointly-controlled entity 147,178 –

20,583 –

Th e negative interest in Premium Drilling was recognised since the management of the Company is of the opinion that the Group has an obligation towards Premium Drilling which was established to manage the operations of some of the Group’s jack-up drilling rigs. During the year, the shareholders of Premium Drilling had terminated their management agreements and subsequent to the termination, the liquidation process has commenced for Premium Drilling Inc. and Premium Drilling (Cayman) Ltd..

25. Cash and cash equivalents and pledged time deposits

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Cash and balances with banks 2,959,033 3,885,093 1,213,051 2,233,835 Deposit with CNOOC Finance Corporation Ltd. (“CNOOC Finance”) 541,962 539,821 541,962 539,821 Time deposits at banks 800,000 270,923 800,000 268,346

Cash and balances with banks and ﬁ nancial institutions 4,300,995 4,695,837 2,555,013 3,042,002 Less: Pledged time deposits-current (247,311) (53,768) (4,902) (3,417) Pledged time deposits-non-current (39,081) (78,235) – –

Cash and cash equivalents 4,014,603 4,563,834 2,550,111 3,038,585

At the end of the reporting period, the cash and bank balances and time deposits at banks of the Group denominated in RMB amounted to approximately RMB1,863,224,000 (2008: RMB2,651,255,000). Th e RMB is not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for foreign currencies through banks authorised to conduct foreign exchange business.

Annual Report 2009 251 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

25. Cash and cash equivalents and pledged time deposits (continued) As at 31 December 2009, included in the time deposits at banks of the Group were non-pledged time deposits with original maturity of more than three months when acquired of approximately RMB800,000,000 (2008: RMB268,346,000). Cash at banks earns interest based on daily bank deposit rates. Time deposits are made for varying periods of between seven days and three months depending on the immediate cash requirements of the Group, and earn interest at the respective time deposit rates.

26. Trade and other payables An aging analysis of the trade and other payables as at the end of the reporting period is as follows:

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Outstanding balances aged: Within one year 3,635,281 3,128,752 2,740,855 2,278,352 One to two years 475,749 288,836 264,463 108,956 Two to three years 87,226 2,847 86,729 2,569 Over three years 25,716 10,456 25,438 10,456

4,223,972 3,430,891 3,117,485 2,400,333

Trade and other payables are non-interest-bearing. Trade and other payables are normally settled on terms ranging from one month to two years. As at 31 December 2009, included in trade and other payables was a balance for a research and development subsidy of approximately RMB44.21million (2008: RMB54.18 million).

27. Share appreciation rights plan On 22 November 2006, the share appreciation rights plan for senior offi cers (the “SAR Plan”) was approved by the shareholders in an extraordinary general meeting. A total of fi ve million share appreciation rights with an exercise price of HK$4.09 per share were awarded under the SAR Plan to seven senior offi cers, including the chief executive offi cer (general manager), three executive vice general managers, and three other non-executive vice general managers. Th e share appreciation rights will become vested upon completion of a two year service period, and the senior offi cers can exercise their rights in four equal batches, beginning year 3 (fi rst exercisable date: the fi rst trading day aft er 22 November 2008), 4, 5 and 6 from the approval date of the SAR Plan. Th e SAR Plan further provides that if the gain from exercising the share appreciation rights exceeds HK$0.99 per share in any one year, the excess gain should be calculated using the following percentage: 1) between HK$0.99 and HK$1.50, at 50%; 2) between HK$1.51 and HK$2.00, at 30%; 3) between HK$2.01 and HK$3.00, at 20%; and 4) HK$3.01 or above, at 15%. Th e grant of the share appreciation rights was completed and became eff ective on 6 June 2007 when all the entitled senior offi cers agreed and signed individual performance contracts with the Company. Th e fair value of the share appreciation rights granted as at 31 December 2009 was measured at HK$2.01 per share. Th e fair value of the rights is calculated using the Black-Scholes model with the following assumptions: expected dividend yield of 1.71%, expected life of two years, expected volatility of 78.58% and a risk-free interest rate of 0.55%. Th e fair value is expensed over the period until vesting with recognition of a corresponding liability. Th e liability is measured at the end of the reporting period and including the settlement date with changes in fair value recognised in profi t or loss.

252 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

27. Share appreciation rights plan (continued) Th e decrease of the share appreciation rights liability amounted to approximately RMB553,000 for the year ended 31 December 2009, and was recorded in salary and bonus payables under general and administrative expenses:

At At 1 January 31 December Shares 2009 Addition Lapse 2009 granted RMB’000 RMB’000 RMB’000 RMB’000

Chief Executive Offi cer and Yuan Guangyu* 964,200 1,402 111 (233) 1,280 President President Li Yong 704,300 1,024 81 (171) 934 Executive Vice President Zhong Hua 704,300 1,024 81 (171) 934 and Chief Financial Offi cer Executive Vice President Chen Weidong 704,300 1,024 81 (171) 934 and Secretary of Board of Directors, Chief Strategy Offi cer Senior Vice President Li Xunke 656,900 955 76 (159) 872 Supervisor Tang Daizhi** 656,900 282 – – 282 Vice President Xu Xiongfei 609,100 885 71 (149) 807

5,000,000 6,596 501 (1,054) 6,043

* Mr. Yuan Guangyu resigned as Chief Executive Offi cer and President of the Company in 2009. According to the terms of the SAR Plan, he had completed the two years service period and all share appreciation rights granted have been fully vested.

** Mr. Tang Daizhi resigned as Supervisor of the Company in 2007. According to the terms of the SAR Plan, he was entitled to his benefi ts up to the date of his resignation. Th e assumptions of the valuation model are based on the subjective estimation of the directors.

28. Deferred tax liabilities Th e movements of deferred tax liabilities during the year are as follows:

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 (Restated)

Balance at beginning of the year 1,697,132 235,569 281,828 235,569 Acquisition of a subsidiary during the year (Note 36) – 1,385,001 – – Charged to the consolidated income statement during the year (Note 10) 94,984 111,446 84,062 46,259 Exchange realignment (1,327) (34,884) – –

Balance at end of year 1,790,789 1,697,132 365,890 281,828

Annual Report 2009 253 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

28. Deferred tax liabilities (continued) Th e principal components of the provision for deferred tax are as follows: Group

Acquisition of Recognised in Balance at Recognised in Balance at a subsidiary consolidated 31 December Balance at consolidated Balance at 1 January (Restated) income Exchange 2008 1 January income Exchange 31 December 2008 (Note 36) statement realignment (Restated) 2009 statement realignment 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Deferred tax assets: Provision for staﬀ bonus (111,101) – (1,451) – (112,552) (112,552) (2,022) – (114,574) Accelerated amortisation – – (1,135) – (1,135) (1,135) 1,135 – – Accrued liabilities – (3,334) (194) (6) (3,534) (3,534) (72,780) 34 (76,280) Tax loss carried forward – (101,545) 73,345 (1,100) (29,300) (29,300) 12,875 20 (16,405) Others – (9,212) (10,194) 97 (19,309) (19,309) (9,778) 22 (29,065)

Deferred tax liabilities: Accelerated depreciation 216,345 350,420 113,237 (38,747) 641,255 641,255 121,864 3,841 766,960 Revaluation surplus on reorganisation 130,325 – (30,075) – 100,250 100,250 (42,105) – 58,145 Fair value adjustment arising from acquisition of a subsidiary – 1,140,926 (25,884) 4,781 1,119,823 1,119,823 3,855 (5,219) 1,118,459 Others – 7,746 (6,203) 91 1,634 1,634 81,940 (25) 83,549

Net deferred tax liabilities 235,569 1,385,001 111,446 (34,884) 1,697,132 1,697,132 94,984 (1,327) 1,790,789

Company

Balance at Recognised in Balance at Balance at Recognised in Balance at 1 January income 31 December 1 January income 31 December 2008 statement 2008 2009 statement 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Deferred tax assets: Provision for staﬀ bonus (111,101) (1,451) (112,552) (112,552) (1,727) (114,279) Accelerated amortisation – (1,135) (1,135) (1,135) 1,135 – Others – – – – (427) (427)

Deferred tax liabilities: Accelerated depreciation 216,345 78,920 295,265 295,265 111,489 406,754 Revaluation surplus on reorganisation 130,325 (30,075) 100,250 100,250 (42,105) 58,145 Others – – – – 15,697 15,697

Net deferred tax liabilities 235,569 46,259 281,828 281,828 84,062 365,890

At 31 December 2009, there was no signifi cant unrecognised deferred tax liability (2008: Nil) for taxes that would be deducted from the unremitted earnings or cash of certain of the Group’s subsidiaries or jointly-controlled entities should such amounts be remitted. Th e Group has tax losses arising in Norway of approximately RMB3,476,354,000 that are available indefi nitely for off setting against future taxable profi ts of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profi ts will be available against which the tax losses can be utilised.

254 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

29. Interest-bearing bank borrowings Group Current:

Contractual Year of 31 December 31 December interest rate maturity 2009 2008 (%) RMB’000 RMB’000

Syndicated bank loan – secured LIBOR+170pts 2009 – 6,359,459 Bank loans – secured LIBOR+225pts 2009 – 476,138

– 6,835,597 Current portion of long term loan 283,081 943,020

283,081 7,778,617

Non-current:

Contractual Year of 31 December 31 December interest rate maturity 2009 2008 (%) RMB’000 RMB’000

Bank loans – unsecured (a) i 2013 544,000 744,000 Bank loans – unsecured (b) ii 2017 356,000 400,000 Bank loans – unsecured (c) LIBOR+170pts 2020 5,462,560 5,467,680 Bank loans – unsecured (d) iii 2015 450,000 – Bank loans – unsecured (e) LIBOR+138pts 2017 10,777,455 – Bank loans – unsecured (f) LIBOR+90pts 2017 5,369,024 – Bank loans – unsecured (f) LIBOR+90pts 2017 4,096,920 – Headquarter entrusted loan – unsecured (g) 3.71% 2011 800,000 – Headquarter entrusted loan – unsecured (g) iv 2012 500,000 – Syndicated bank loan – secured LIBOR+170pts 2010 – 3,189,503 Bank loans – secured LIBOR+162.5 pts 2010 – 6,725,859 Bank loans – secured LIBOR+162.5 pts 2019 – 654,071 Bank loans – secured (h) 3.20% 2011 78,162 117,353

28,434,121 17,298,466 Less: current portion of long term loan (283,081) (943,020)

28,151,040 16,355,446

Annual Report 2009 255 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

29. Interest-bearing bank borrowings (continued) Company Current:

Contractual Year of 31 December 31 December interest rate maturity 2009 2008 (%) RMB’000 RMB’000

Current portion of long term loan 244,000 244,000

244,000 244,000

Non-current:

Contractual Year of 31 December 31 December interest rate maturity 2009 2008 (%) RMB’000 RMB’000

28,355,959 6,611,680 Less: current portion of long term loan (244,000) (244,000)

28,111,959 6,367,680

i Market interest rate of similar loan type quoted by the People’s Bank of China. ii 4.86% for the fi rst quarter and thereaft er the market interest rate of similar loan type quoted by the People’s Bank of China. iii 3.51% for the fi rst quarter and thereaft er the market interest rate of similar loan type quoted by the People’s Bank of China. iv 3.66% for the fi rst quarter and thereaft er the interest rate as determined by the loan entrustor. (a) Th e Group borrowed a RMB denominated bank loan to be repaid from 30 June 2008 to 30 June 2013 by instalments as follows: RMB200 million on every 30 June from 2008 to 2011, RMB100 million on 30 June 2012, and RMB44 million on 30 June 2013. (b) Th e Group borrowed a RMB400 million loan which should be repaid from 19 November 2009 to 19 November 2017 by instalments as follows: RMB44 million on every 19 November from 2009 to 2016, RMB48 million on 19 November 2017. (c) Th e Group borrowed a US$800 million loan of which the repayment will start on 2 September 2011, with instalments amounting to US$42.1 million bi-annually. (d) Th e Group borrowed a RMB450 million loan of which the repayment will start on 7 April 2011, with instalments amounting to RMB90 million annually.

256 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

29. Interest-bearing bank borrowings (continued) (e) Th e Group borrowed a US$1,580 million loan of which the repayment will start on 14 May 2012 over eleven instalments, paid bi- annually. (f) Th e Group borrowed a US$800 million loan and a US$600 million which will be repaid on 24 May 2017 and 21 May 2017, respectively. (g) Th e Group obtained entrusted loan facilities amounting to RMB2 billion and RMB1 billion which will be repaid on 10 June 2011 and 29 June 2012, respectively. (h) Th e loan is denominated in United States dollars and is to be repaid in semi-annual instalments beginning six months aft er the loan drawdown date.

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Bank borrowings repayable: Within one year, inclusive 283,081 7,778,617 244,000 244,000 In the second year 1,460,548 9,619,692 1,421,467 244,000 In the third to ﬁ ft h year 7,753,175 2,486,814 7,753,175 2,202,420 Beyond ﬁ ve years 18,937,317 4,248,940 18,937,317 3,921,260

28,434,121 24,134,063 28,355,959 6,611,680

As at 31 December 2009, the carrying amount of the long term bank borrowings approximate their fair values of approximately RMB28,056,182,000 (2008: RMB17,298,466,000), which was the present value of the loans’ future cash ﬂ ows discounted by the prevailing market interest rates quoted by the respective banks.

31 December 31 December 2009 2008 RMB’000 RMB’000

Security Drilling rigs pledged – 13,531,780 Construction in progress pledged – 12,789,664

Total – 26,321,444

One of Group’s bank loan is secured by a pledged time deposit amounting to RMB78 million. Th e assets pledged for securities as at 31 December 2008 are mainly pertaining to bank loans which were fully repaid in 2009.

Annual Report 2009 257 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

30. Long term bonds Group

31 December 31 December Year of maturity 2009 2008 RMB’000 RMB’000

Corporate bonds (a) 2022 1,500,000 1,500,000 Senior unsecured USD bonds (b) 2011 561,979 675,949 Second security priority USD bonds (c) 2011 608,041 1,366,649 Senior unsecured NOK bonds (d) 2010 – 485,744

2,670,020 4,028,342

Company

31 December 31 December Year of maturity 2009 2008 RMB’000 RMB’000

Corporate bonds (a) 2022 1,500,000 1,500,000

(a) On 18 May 2007, the Group issued 15-year corporate bonds, with a nominal value of RMB100.00 per bond, amounting to RMB1,500 million. Th e bonds carry interest at a fi xed coupon rate of 4.48% per annum, which is payable annually in arrears on 14 May, and the redemption or maturity date is 14 May 2022. (b) COSL Drilling Europe AS issued the bonds in February 2006, with a book value of US$100 million. Th e bonds are unsecured, have a fi ve year bullet maturity and carry a fi xed coupon rate of 9.75%. Th e bonds are fl exible in that they (1) have no change of control provisions; and (2) allow for a possible demerger of the Group in connection with possible future corporate transactions, which is pre-approved by the bond holders. During the year, part of the bonds were redeemed by the Group. (c) COSL Drilling Semi AS (formerly known as “Off rig Drilling ASA”) issued the bonds in April 2006, with book value of US$200 million and with a second security priority mortgage in the construction contracts relating to semi-submersible rigs. Th e company incurred debt issuance costs of US$4.5 million, which are capitalised and amortised as a component of interest expense over the term of the bonds. Th e bonds carry a fi xed coupon rate of 9.75% and have a fi ve year bullet maturity. During the year, part of the bonds were redeemed by the Group. Th e bond is secured by construction in progress amounting to RMB4,674 million. (d) COSL Drilling Europe AS issued the bonds in July 2007, with a book value of NOK 500 million, and an interest rate of NIBOR+2.25%. Th e bullet maturity is three years. Th e bonds were fully redeemed during the year.

258 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

31. Deferred revenue

31 December 31 December 2009 2008 RMB’000 RMB’000 (Restated)

Balance at beginning of the year 1,858,302 – Acquisition of subsidiary during the year (Note 36) – 1,864,771 Credited to the consolidated income statement during the year (1,076,937) (10,100) Exchange realignment (1,251) 3,631

Balance at end of year 780,114 1,858,302

Deferred revenue was generated in the process of the acquisition, arising from the diﬀ erence of contracted day rates and market day rates of the drilling rigs owned by COSL Drilling Europe AS. Th e deferred revenue is amortised according to the related contract period. Included in the amount credited to income during the year is an amount of RMB1,073,098,000 (2008: Nil) arising from the cancellation of a contract during the year.

32. Derivative ﬁ nancial instruments

Group 2009 2008 RMB’000 RMB’000

Non-current: Cross currency interest rate swap – 49,308

Th e carrying amount of the interest swap equals to its fair value. Th rough a business combination, the Group acquired a cross currency interest rate swap agreement relating to the NOK500 million bonds. Th is swap receives NOK and pays USD for a total amount of NOK250 million and has a maturity of 6 July 2010 (matching the maturity of the underlying bond). In addition, part of the NOK bond (NOK250 million), subject to a rate of 3 month NIBOR + 2.25%, has been swapped with a 3 month US LIBOR + 2.40%. Th is swap agreement has been entered into to minimise the exposure to fl uctuations in the USD/NOK exchange rate. Th e NOK bond was fully redeemed during the year and the swap contract had expired as at 31 December 2009. Forward currency contracts – cash fl ow hedges In 2008, the Group had three forward currency contracts designated as hedges of the acquisition of a subsidiary in Norway. Th e terms of the forward currency contracts have been negotiated to match the terms of the acquisition consideration. Th e cash fl ow hedges were assessed to be highly eff ective and a realised net loss of RMB497.5 million was included in the acquisition cost in 2008. Th ere were no hedges in 2009.

Annual Report 2009 259 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

33. Other non-current liabilities

Group 2009 2008 RMB’000 RMB’000

Negative interest in a jointly-controlled entity 36,399 72,406 Due to a jointly-controlled entity – 93,771 Due from a jointly-controlled entity (30,116) (71,920)

6,283 94,257

Th e negative interest in Atlantis Deepwater was recognised as other non-current liabilities since the management of the Company is of the opinion that the Group has an obligation towards Atlantis Deepwater. Th e balance as at 31 December 2008 was the share of net liabilities in Premium Drilling. As at 31 December 2009, the corresponding negative interest and the amount due to/from Premium Drilling were classiﬁ ed as other current assets since the liquidation process of Premium Drilling had commenced.

34. Issued capital

2009 2008 RMB’000 RMB’000

Registered, issued and fully paid: 2,460,468,000 state legal person shares of RMB1.00 each 2,460,468 2,460,468 1,534,852,000 H shares of RMB1.00 each 1,534,852 1,534,852 500,000,000 A shares of RMB1.00 each 500,000 500,000

4,495,320 4,495,320

Th ere were no movements in the Company’s issued ordinary share capital during the year. Th e Company does not have any share option scheme but has a share appreciation rights plan for senior oﬃ cers (Note 27).

260 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

35. Reserves (a) Group Th e amounts of the Group’s reserves and the movements therein for the current year are presented in the consolidated statement of changes in equity on page 205 of the ﬁ nancial statements. (b) Company

Statutory Cumulative Capital reserve Retained translation Notes reserve funds proﬁ ts reserve Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2008 8,074,565 677,615 3,566,845 1,352 12,320,377 Total comprehensive income for the year – – 3,145,684 (6,543) 3,139,141 Proposed ﬁ nal 2008 dividend 12 – – (629,345) – (629,345) Transfer to statutory reserve funds (i) – 322,441 (322,441) – –

At 31 December 2008 8,074,565 1,000,056 5,760,743 (5,191) 14,830,173

Balance at 1 January 2009 8,074,565 1,000,056 5,760,743 (5,191) 14,830,173 Total comprehensive income for the year – – 3,352,684 1,503 3,354,187 Proposed ﬁ nal 2009 dividend 12 – – (629,345) – (629,345) Transfer to statutory reserve funds (i) – 335,584 (335,584) – –

At 31 December 2009 8,074,565 1,335,640 8,148,498 (3,688) 17,555,015

Note: (i) As detailed in Note 12 to the fi nancial statements, the Company is required to transfer a minimum percentage of aft er-tax profi t, if any, to the statutory common reserve fund. Th e Company transferred 10% of aft er-tax profi t under PRC Accounting Standards to the statutory common reserve fund in 2009. As at 31 December 2009, in accordance with PRC Company Law, an amount of approximately RMB8,075 million (2008: RMB8,075 million) standing to the credit of the Company’s capital reserve account and an amount of approximately RMB1,336 million (2008: RMB1,000million) standing to the credit of the Company’s statutory reserve funds, as determined under PRC accounting principles and fi nancial regulations, were available for distribution by way of a future capitalisation issue. In addition, the Company had retained profi ts of approximately RMB8,778 million (2008: RMB6,390 million) available for distribution as a dividend. Save as the aforesaid, the Company did not have any reserves available for distribution to its shareholders at 31 December 2009. Th e retained profi ts of the Company determined under the relevant PRC accounting standards and fi nancial regulations amounted to approximately RMB9,027 million as at 31 December 2009.

Annual Report 2009 261 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

36. Business combination On 29 September 2008, the Group acquired a 98.8% interest in Awilco Off shore ASA (currently known as COSL Drilling Europe AS, “CDE”). On 15 October 2008, the Group acquired the rest of the interest thereby holding a 100% interest in CDE. CDE was a public limited liability company incorporated and domiciled in Norway. Th e principal activity of CDE is the investment in and operation of jack-up drilling rigs, semi-submersible drilling rigs and accommodation rigs. Th e Company has recognised a preliminary purchase price allocation immediately aft er its acquisition of CDE in September 2008, and in accordance with HKFRS 3 “Business Combinations”, the Company has fi nalised the purchase price allocation during the year. A comparison of the preliminary and fi nalised fair value of identifi ed assets and liabilities of CDE is presented below:

Preliminary Finalised Carrying fair value fair value Notes amount recognised Adjustments recognised RMB’000 RMB’000 RMB’000 RMB’000

Property, plant and equipment 14 13,732,107 25,698,994 (1,510,446) 24,188,548 Intangible assets 16 – 253,034 – 253,034 Cash and cash equivalents 447,197 447,197 – 447,197 Pledged time deposits 117,073 117,073 – 117,073 Other assets 815,671 815,671 – 815,671 Interest-bearing bank borrowings (6,720,121) (7,760,577) – (7,760,577) Trade and other payables (541,664) (541,664) – (541,664) Long term bonds (2,615,202) (2,615,202) – (2,615,202) Deferred tax liabilities 28 (244,075) (2,116,871) 731,870 (1,385,001) Deferred revenue 31 – (1,519,104) (345,667) (1,864,771) Other non-current liabilities (47,848) (47,848) – (47,848) Other liabilities (1,149,170) (108,714) – (108,714)

Total net assets acquired 3,793,968 12,621,989 (1,124,243) 11,497,746

Goodwill on acquisition 15 3,472,241 1,124,243 4,596,484

Satisﬁ ed by cash 16,094,230 – 16,094,230

An analysis of the net outﬂ ow of cash and cash equivalents in respect of the acquisition of a subsidiary is as follows:

RMB’000

Cash consideration 16,094,230 Cash and cash balances acquired (447,197)

Net outﬂ ow of cash and cash equivalents in respect of the acquisition of a subsidiary 15,647,033

If the combination had taken place at the beginning of 2008, the net profi t of the Group for the year ended 31 December 2008 would have been RMB3,323.9 million and the revenue would have been RMB14,664.9 million. Th e comparative fi gures of the consolidated fi nancial statements were restated based on the fi nalised purchase price allocation in accordance with HKFRS 3, Business Combinations.

262 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

37. Operating lease arrangements (a) Group and Company as lessee Th e Group and the Company lease certain of their oﬃ ce properties and equipment under operating lease arrangements. Leases for properties and equipment are negotiated for terms ranging from one to ﬁ ve years. At 31 December 2009, the Group and the Company had the following minimum lease payments under non-cancellable operating leases falling due as follows:

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Within one year 139,338 127,420 131,443 119,652 In the second to ﬁ ft h year, inclusive 193,099 275,668 169,207 251,754 Aft er ﬁ ve years 28,470 28,497 – –

360,907 431,585 300,650 371,406

(b) Group as lessor Th e Group has entered into a bareboat lease with a lease term of ﬁ ve years. At 31 December 2009, the Group had the following minimum lease receivables under a non-cancellable operating lease falling due as follows:

Group 2009 2008 RMB’000 RMB’000

Within one year 170,483 170,483 In the second to ﬁ ft h year, inclusive 113,655 284,138

284,138 454,621

38. Capital commitments Th e Group and the Company had the following capital commitments, principally for construction and purchases of property, plant and equipment at the end of the reporting period:

Group Company 2009 2008 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000

Contracted, but not provided for 12,556,797 6,384,560 2,962,305 806,499 Authorised, but not contracted for 7,671,765 18,990,187 7,671,766 18,990,187

20,228,562 25,374,747 10,634,071 19,796,686

Annual Report 2009 263 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

39. Notes to the consolidated statement of cash ﬂ ows Reconciliation of proﬁ t before tax to cash generated from operations

2009 2008 RMB’000 RMB’000

CASH FLOWS FROM OPERATING ACTIVITIES Proﬁ t before tax 3,759,599 3,307,286 Adjustments for: Finance costs 777,493 638,985 Interest income (60,352) (191,433) Share of proﬁ ts of jointly-controlled entities (110,264) (215,707) Exchange losses, net 92,686 91,358 Loss on disposal of items of property, plant and equipment, net 19,017 53,429 Depreciation of property, plant and equipment and amortisation of intangible assets 2,865,166 1,563,534 Impairment of available-for-sale investments 15,003 106,508 Impairment of accounts receivable and other receivables 43,428 49,132 Provision against inventories 1,070 3,853 Impairment of property, plant and equipment 819,889 – Recognition of deferred revenue (1,078,188) (6,469)

7,144,547 5,400,476

Increase in inventories (40,748) (288,302) Increase in accounts receivable (1,049,404) (1,078,472) Increase in notes payable, trade and other payables, net of payables for property, plant and equipment purchases 337,670 475,518 Increase in notes receivable (74,788) (352,620) (Increase)/decrease in prepayments, deposits and other receivables (3,402) 209,187 (Decrease)/increase in salary and bonus payables (12,751) 91,021

Cash generated from operations 6,301,124 4,456,808

40. Material litigations and potential tax disputes (a) In 2007, Awilco Off shore ASA made a compulsory acquisition of the outstanding shares in Off Rig Drilling ASA (“OFRD”). Th e acquisition was made in accordance with the Norwegian Public Limited Companies Act. Certain minority shareholders owning an aggregate of 8.8% in OFRD disagreed with the price paid per share. In 2009, an appraisement where the redemption price for the shares was set at a price higher than the acquisition price was made by a Norwegian court. Th e Group has fi led a petition for a second appraisement by a higher court and the proceedings have been set in 2010. Th e information usually required by HKAS 37 Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation. Th e Directors are of the opinion that the fi nal outcome of these items will not have signifi cant adverse eff ect on the fi nancial position of the Group. (b) During the year, two subsidiaries of the Group received notifi cation from the local tax authorities requesting information on the valuation basis used by the company for the transfer of certain contracts and options to entities within the Group, and indicating its intent to consider additional assessment. If the basis indicated by the tax authorities is adopted, the tax liability relating to the transfers could increase substantially for both companies. Th e Directors will defend vigorously against any additional assessment by the tax authorities. Considering the uncertainties relating to the fi nal outcome of both the fi nal assessment amount and the timing of the cash outfl ows, if any, the Directors have not made any provision for any amount arising from the above-mentioned tax contingency in these fi nancial statements.

264 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

41. Related party transactions

(A) Related party transactions and outstanding balances with related parties:

Companies are considered to be related if one company has the ability, directly or indirectly, to control the other company, or exercise signifi cant infl uence on the other company in making fi nancial and operating decisions. Companies are also considered to be related if they are subject to common control or common signifi cant infl uence.

Th e Group has extensive transactions and relationships with the members of CNOOC. Th e transactions were made on terms agreed among the parties.

In addition to the transaction and balances detailed elsewhere in these ﬁ nancial statements, the following is a summary of signiﬁ cant transactions carried out between the Group and (i) CNOOC Limited and its Subsidiaries (“CNOOC Limited Group”); (ii) CNOOC and its Subsidiaries, excluding CNOOC Limited Group (“CNOOC Group”); and (iii) the Group’s jointly-controlled entities.

a. Included in revenue-gross revenue earned from provision of services to the following related parties:

2009 2008 RMB’000 RMB’000

i CNOOC Limited Group Provision of drilling services 4,913,421 3,321,950 Provision of well services 3,432,383 2,132,007 Provision of marine support and transportation services 1,547,896 1,141,586 Provision of geophysical services 1,013,549 1,013,630

10,907,249 7,609,173

ii CNOOC Group Provision of drilling services 302,997 109,750 Provision of well services 136,294 17,457 Provision of marine support and transportation services 219,166 217,848 Provision of geophysical services 158,835 135,118

817,292 480,173

iii Jointly-controlled entities Provision of drilling services 172,529 4,689 Provision of well services 5,563 11,081 Provision of marine support and transportation services 7,031 4,637 Provision of geophysical services 657 4,209

185,780 24,616

Annual Report 2009 265 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

41. Related party transactions (continued)

(A) Related party transactions and outstanding balances with related parties: (continued)

b. Included in operating expenses

2009 2008 RMB’000 RMB’000

Services provided by CNOOC Group and the Group’s jointly-controlled entities: Labour services 24,287 23,702 Materials, utilities and other ancillary services 400,361 229,210 Transportation services 4,250 2,981 Leasing of oﬃ ces, warehouses and berths 81,915 69,519 Repair and maintenance services 3,985 13,795 Management services 24,946 53,513

539,744 392,720

c. Included in interest income/expenses

2009 2008 RMB’000 RMB’000

CNOOC Finance Co. Ltd. (a subsidiary of CNOOC) Interest income 4,247 1,716

Interest expenses 22,812 836

d. Loans drawn down and repaid during the year:

2009 2008 RMB’000 RMB’000

CNOOC Finance Co. Ltd. 1,300,000 199,659

e. Construction progress billing:

2009 2008 RMB’000 RMB’000

Drilling rigs construction service provided by CNOOC Group 1,262,965 107,038

f. Deposits:

31 December 31 December 2009 2008 RMB’000 RMB’000

Deposits placed with CNOOC Finance Co. Ltd. as at the end of the reporting period 541,962 539,821

266 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

41. Related party transactions (continued) (A) Related party transactions and outstanding balances with related parties: (continued)

g. Accounts receivable: Included in accounts receivable are amounts due from related parties which arose from the ordinary course of business and are repayable on similar credit terms to those oﬀ ered to independent third party customers.

31 December 31 December 2009 2008 RMB’000 RMB’000

Due from the ultimate holding company 257,469 120,526 Due from CNOOC Limited Group 1,874,789 1,574,383 Due from other CNOOC Group companies 135,189 77,259 Due from jointly-controlled entities 86,095 3,199

2,353,542 1,775,367

h. Prepayments, deposits and other receivables

31 December 31 December 2009 2008 RMB’000 RMB’000

Due from the ultimate holding company 1,984 2,300 Due from CNOOC Limited Group 845 921 Due from other CNOOC Group companies 298,470 285,525 Due from jointly-controlled entities 23,754 16,391

325,053 305,137

i. Notes receivable

31 December 31 December 2009 2008 RMB’000 RMB’000

Due from CNOOC Limited Group 427,108 338,270

j. Trade and other payables

31 December 31 December 2009 2008 RMB’000 RMB’000

Due to the ultimate holding company 3,248 3,248 Due to CNOOC Limited Group 1,594 38,490 Due to other CNOOC Group companies 157,282 85,818 Due to jointly-controlled entities 64,380 48,977

226,504 176,533

k. Notes payable

31 December 31 December 2009 2008 RMB’000 RMB’000

Due to other CNOOC Group companies – 366,763

Annual Report 2009 267 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

41. Related party transactions (continued)

(A) Related party transactions and outstanding balances with related parties: (continued)

Th e Company and the above related parties are within CNOOC Group and are under common control by the same ultimate holding company.

Th e balances with related parties at 31 December 2009 under prepayments, deposits and other receivables and trade and other payables and notes payable of the Group are unsecured and interest-free, and have no ﬁ xed terms of repayment.

In connection with the Reorganisation, the Company entered into several agreements with CNOOC Group which govern the employee beneﬁ ts arrangements, the provision of materials, utilities and ancillary services, the provision of technical services, the leasing of properties and various other commercial arrangements.

During the year, all pension scheme payments relating to the Supplementary Pension Beneﬁ ts of approximately RMB21 million (2008: RMB38 million) were borne by CNOOC (Note 9).

Prior to the Reorganisation, the Group occupied certain properties owned by CNOOC at nil consideration. Th e Company entered into various property lease agreements in September 2002 with CNOOC Group to lease the aforesaid properties together with other properties for a term of one year. Th ese leases have been renewed annually on terms based upon corresponding market prices.

Th e directors of the Company are of the opinion that the above transactions with related parties were conducted in the usual course of business.

l. Transactions with other state-owned enterprises in the PRC

Th e Group is indirectly controlled by the PRC government and operates in an economic environment predominated by entities directly or indirectly owned or controlled by the government through its agencies, affi liates or other organizations (collectively “State-owned Entities” (“SOEs”)). During the year, the Group had transactions with other SOEs including, but not limited to, certain sales of goods and provision of services, certain purchases of goods or services; obtaining loans and making deposits with fi nancial institutions and the rental of certain properties. Th e directors of the Company consider that these transactions with other SOEs are activities in the ordinary course of business and that the dealings of the Group have not been signifi cantly or unduly aff ected by the fact that the Group and the other SOEs are ultimately controlled or owned by the PRC government. Th e Group has also established pricing policies for its products and services and such pricing policies do not depend on whether or not the customers are SOEs. Having due regard to the substance of the relationships, the directors of the Company are of the opinion that none of these transactions are material related party transactions that require separate disclosures.

m. Amount due from and to subsidiaries

Other long term receivables of the Company consist of long term loans to subsidiaries of the Company.

The amount due from and to subsidiaries included in the Company’s current assets and current liabilities of RMB2,325,095,000 (2008: RMB1,884,809,000) and RMB79,284,000 (2008: RMB29,752,000), respectively, are unsecured, interest free and are repayable on demand or within one year.

(B) Compensation of key management personnel of the Group:

31 December 31 December 2009 2008 RMB’000 RMB’000

Short term employee beneﬁ ts 5,404 5,257 Post-employment beneﬁ ts 381 390 Share appreciation rights (553) (714)

Total compensation paid to key management personnel 5,232 4,933

268 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

41. Related party transactions (continued) (B) Compensation of key management personnel of the Group: (continued)

Further details of directors’ emoluments are included in Note 7 to the ﬁ nancial statements.

Except for certain transactions in item a(iii), the above transactions also constitute connected transactions or continuing connected transactions as deﬁ ned in Chapter 14A of the Listing Rules.

42. Financial instruments (a) Financial instruments by category Th e carrying amounts of each of the categories of ﬁ nancial instruments of the Group as at the end of the reporting period are as follows:

Group 2009 2008 Available- Available- Held-to- for-sale Held-to- for-sale maturity Loans and ﬁ nancial maturity Loans and ﬁ nancial investments receivables assets Total investments receivables assets Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Financial assets Available-for-sale investments (Note 19) – – 19,381 19,381 – – 34,318 34,318 Accounts receivable (Note 22) – 3,745,547 – 3,745,547 – 2,735,025 – 2,735,025 Notes receivable (Note 23) – 429,658 – 429,658 – 354,870 – 354,870 Financial assets included in deposits and receivables (Note 21) – 227,267 – 227,267 – 224,307 – 224,307 Pledged deposits (Note 25) 78,162 208,230 – 286,392 117,353 14,650 – 132,003 Cash and cash equivalents (Note 25) – 4,014,603 – 4,014,603 – 4,563,834 – 4,563,834 Due from jointly-controlled entities – 186,692 – 186,692 – 102,896 – 102,896

Total 78,162 8,811,997 19,381 8,909,540 117,353 7,995,582 34,318 8,147,253

Group 2009 2008 Financial liabilities at fair value through proﬁ t or loss- Financial designated as Financial liabilities at such upon initial liabilities at amortised cost recognition amortised cost Total RMB’000 RMB’000 RMB’000 RMB’000

Financial liabilities Trade and other payables (Note 26) 4,223,972 – 3,430,891 3,430,891 Notes payable – – 366,763 366,763 Long term bonds (Note 30) 2,670,020 – 4,028,342 4,028,342 Interest-bearing bank borrowings (Note 29) 28,434,121 – 24,134,063 24,134,063 Derivative ﬁ nancial instruments (non-current) (Note 32) – 49,308 – 49,308 Due to jointly-controlled entities 32,463 – 93,867 93,867

Total 35,360,576 49,308 32,053,926 32,103,234

Annual Report 2009 269 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

42. Financial instruments (continued) (a) Financial instruments by category (continued) Th e carrying amounts of each of the categories of ﬁ nancial instruments of the Company as the end of the reporting period are as follows:

Company 2009 2008 Loans and Loans and receivables receivables RMB’000 RMB’000

Financial assets Due from jointly-controlled entities (Note 18) 9,398 4,281 Accounts receivable (Note 22) 4,197,063 3,316,609 Notes receivable (Note 23) 429,658 354,870 Financial assets included in deposits and receivables (Note 21) 980,470 543,027 Pledged time deposits (Note 25) 4,902 3,417 Cash and cash equivalents (Note 25) 2,550,111 3,038,585

Total 8,171,602 7,260,789

Company 2009 2008 Financial Financial liabilities at liabilities at amortised cost amortised cost RMB’000 RMB’000

Financial liabilities Due to jointly-controlled entities (Note 18) – 96 Trade and other payables (Note 26) 3,117,485 2,400,333 Notes payable – 366,763 Long term bonds (Note 30) 1,500,000 1,500,000 Interest-bearing bank borrowings (Note 29) 28,355,959 6,611,680

Total 32,973,444 10,878,872

(b) Fair value hierarchy Th e Group uses the following hierarchy for determining and disclosing the fair value of fi nancial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a signifi cant eff ect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a signifi cant eff ect on the recorded fair value that are not based on observable market data.

270 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

42. Financial instruments (continued) (b) Fair value hierarchy (continued) As at 31 December 2009, the Group held the following ﬁ nancial instruments measured at fair value: Assets measured at fair value as at 31 December 2009:

Level 1 Level 2 Level 3 Total RMB’000 RMB’000 RMB’000 RMB’000

Equity shares 19,281 – – 19,281

As at 31 December 2009, the Company has no ﬁ nancial instruments measured at fair value. During the reporting period ending 31 December 2009, there were no transfers between Level 1 and Level 2 fair value measurements.

43. Financial risk management objectives and policies Th e Group’s principal fi nancial instruments, other than derivatives, comprise short term bank borrowings, long term bank borrowings, cash and short term deposits, placements with other fi nancial institutions and available-for-sale investments. Th e main purpose of these fi nancial instruments is to raise fi nance for the Group’s operations. Th e Group has various other fi nancial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. Th e Group also enters into derivative transactions, including principally interest rate swaps and forward currency contracts. Th e purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of fi nance. Th e main risks arising from the Group’s fi nancial instruments are foreign currency risk, interest rate risk, credit risk and liquidity risk. Th e board reviews and agrees policies for managing each of these risks and they are summarised below. Foreign currency risk Foreign currency risk is the risk that the value of a fi nancial instrument will fl uctuate because of changes in foreign exchange rates. With the majority of the Group’s businesses transacted in RMB, the aforesaid currency is defi ned as the Group’s functional currency. RMB is not freely convertible into foreign currencies and conversion of RMB into foreign currencies is subject to rules and regulations of foreign exchange control promulgated by the PRC government. Th e Group has no signifi cant transactional currency exposures as there are no signifi cant sales or purchases by operating units in currencies other than the units’ functional currency. As such, the Group has not entered into any hedging transactions in order to reduce the Group’s exposure to foreign currency risk in this regard. However, the Company is exposed to foreign currency risk as the Company had obtained debts denominated in US dollars. Th e management has assessed the Group’s exposure to foreign currency risk (due to changes in the fair value of monetary assets and liabilities) by using a sensitivity analysis on the change in the foreign exchange rates of US dollars, to which the Group is mainly exposed to as at 31 December 2009 and 2008. Based on the management’s assessment at 31 December 2009, if the Renminbi had weakened 5 percent against the US dollar with all other variables held constant, profi t before tax for the year would have been RMB1,249 million (2008: RMB255 million) lower. Conversely, if the Renminbi had strengthened 5 percent against the US dollar with all other variables held constant, profi t before tax would have been RMB1,249 million (2008: RMB255million) higher. Th e foreign currency exchange rate sensitivity in profi t before tax in 2009 compared with 2008 is attributable to an increase in foreign currency denominated debt. Interest rate risk Th e Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with a fl oating interest rate. Th e Group’s policy is to manage its interest cost using a mix of fi xed and variable rate debts. To manage this mix in a cost-eff ective manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specifi ed intervals, the diff erence between fi xed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. At 31 December 2009, most of the Group’s interest-bearing bank borrowings bore interest at fl oating rates. Based on management’s assessment, at 31 December 2009, if interest rates at that date had been 50 basis points lower with all other variables held constant, profi t before tax for the year would have been RMB70.7 million (2008: RMB26.6 million) higher, arising mainly as a result of lower interest expense on fl oating rate bank borrowings. If the interest rate had been 50 basis points higher with all other variables held constant, profi t before tax for the year would have been RMB70.7 million (2008: RMB26.6 million) lower arising mainly as a result of higher interest expense on fl oating rate bank borrowings.

Annual Report 2009 271 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

43. Financial risk management objectives and policies (continued) Credit risk Th e Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not signifi cant. The credit risk of the Group’s other financial assets, which mainly comprise cash and cash equivalents and available-for-sale investments, arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Th e Group manages this credit risk by only dealing with reputable fi nancial institutions. Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty, by geographical region and by industry sector. No other fi nancial assets carry a signifi cant exposure to credit risk. Liquidity risk Th e Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. Th is tool considers the maturity of both its fi nancial instruments and fi nancial assets (e.g., accounts receivable) and projected cash fl ows from operations. In addition, bank facilities have been put in place for contingency purposes. Th e Group’s objective is to maintain a balance between continuity of funding and fl exibility through long term bonds and interest- bearing loans. 3% of the Group’s debts would mature in less than one year as at 31 December 2009 (2008: 32%) based on the carrying value of interest-bearing bank and other borrowings refl ected in the fi nancial statements. Th e maturity profi le of the Group’s fi nancial liabilities as at the end of the reporting period, based on the contracted undiscounted payments, was as follows:

Group 2009 On Less than 2 to 5 Over 5 demand 1 year 1 to 2 years years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Interest-bearing bank borrowings – 828,749 1,936,526 8,969,637 19,402,100 31,137,012 Long term bonds – – 1,171,036 – 1,500,000 2,671,036 Trade and other payables – 4,223,972 – – – 4,223,972

– 5,052,721 3,107,562 8,969,637 20,902,100 38,032,020

Group 2008 On Less than 2 to 5 Over 5 demand 1 year 1 to 2 years years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Interest-bearing bank borrowings – 8,357,284 9,865,111 3,017,812 4,631,128 25,871,335 Long term bonds – – 488,150 2,050,380 1,500,000 4,038,530 Trade and other payables – 3,430,891 – – – 3,430,891 Notes payable – 366,763 – – – 366,763 Derivative ﬁ nancial instruments – 49,308 – – – 49,308

– 12,204,246 10,353,261 5,068,192 6,131,128 33,756,827

272 China Oilﬁ eld Services Limited Financial Statements (HK)

Notes to Financial Statements

31 December 2009

43. Financial risk management objectives and policies (continued) Liquidity risk (continued) Th e maturity proﬁ le of the Group’s ﬁ nancial liabilities as at the end of the reporting period, based on the contracted undiscounted payments, was as follows:

Company 2009 On Less than 2 to 5 Over 5 demand 1 year 1 to 2 years years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Interest-bearing bank borrowings – 788,418 1,897,445 8,969,637 19,402,100 31,057,600 Long term bonds – – – – 1,500,000 1,500,000 Trade and other payables – 3,117,485 – – – 3,117,485

– 3,905,903 1,897,445 8,969,637 20,902,100 35,675,085

Company 2008 On Less than 2 to 5 Over 5 demand 1 year 1 to 2 years years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Interest-bearing bank borrowings – 486,095 471,601 2,700,286 4,295,165 7,953,147 Long term bonds – – – – 1,500,000 1,500,000 Trade and other payables – 2,400,333 – – – 2,400,333 Notes payable – 366,763 – – – 366,763 Interest in jointly-controlled entities – 96 – – – 96

– 3,253,287 471,601 2,700,286 5,795,165 12,220,339

Annual Report 2009 273 Financial Statements (HK)

Notes to Financial Statements

31 December 2009

43. Financial risk management objectives and policies (continued) Capital management Th e primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholder value. Th e Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. Th e Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2009 and 31 December 2008. Th e Group monitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. Net debt includes interest- bearing bank and other borrowings, long term bonds, an amount due to the ultimate holding company and other CNOOC group companies, trade and other payables, less cash and cash equivalents. Capital represents equity attributable to equity holders of the Parent. Th e gearing ratios as at the end of the reporting period were as follows:

Group 2009 2008 RMB’000 RMB’000

Interest-bearing bank borrowings (Note 29) 28,434,121 24,134,063 Trade and other payables (Note 26) 4,223,972 3,430,891 Notes payable – 366,763 Long term bonds (Note 30) 2,670,020 4,028,342 Less: Cash and cash equivalents (Note 25) (4,014,603) (4,563,834)

Net debt/(funds) 31,313,510 27,396,225

Equity attributable to equity holders of the parent 22,305,605 19,797,844

Total capital 22,305,605 19,797,844

Capital and net debt/(funds) 53,619,115 47,194,069

Gearing ratio 58% 58%

44. Comparative amounts As further explained in Note 2.2 to the fi nancial statements, due to the adoption of new and revised HKFRSs during the current year, the accounting treatment and presentation of certain items and balances in the fi nancial statements have been revised to comply with the new requirements. Accordingly, certain comparative amounts have been reclassifi ed and restated to conform with the current’s year’s presentation and accounting treatment. Further, as described in Note 36 to the fi nancial statements, due to the fi nalisation of the purchase price allocation during the year, certain comparative amounts were restated. In addition, certain comparative amounts have been reclassifi ed to conform with the current year’s presentation.

45. Approval of the ﬁ nancial statements Th e ﬁ nancial statements were approved and authorised for issue by the board of directors on 30 March 2010.

274 China Oilﬁ eld Services Limited 16. Company Information

Legal name Corporate Secretary & Share Registrar 中海油田服務股份有限公司 Secretary to the Board of H Share: Directors Computershare Hong Kong English Name Mr. Chen Weidong Investor Services limited China Oilfield Services Limited Tel: 010-8452 1993 Shops 1712-1716, 17/F, Fax: 010-8452 1325 Hopewell Centre, 183 Queen’s Road East, Short Name E-mail: [email protected] Wanchai, Hong Kong COSL Contact Address: Room 610, CNOOC Plaza, A Share: Authorised Representative No. 25 Chaoyangmen North Avenue, China Securities Depository and Mr. Liu Jian Dongcheng Clearing Corporation Limited District, Beijing Shanghai Branch First registration Address China Insurance Building, 3-1516 Hebei Road, Haiyang New and Representative of Securities 166 East Lujiazui Road, Shanghai Hi-Tech Development Zone, Tanggu, affairs Tianjin Mr Yang Haijiang Place where this annual report Tel: 010-8452 1129 is available Fax: 010-8452 1325 Room 610, CNOOC Plaza, The registration date No. 25 Chaoyangmen North Avenue, 26 September 2002 E-mail: [email protected] Contact Address: Room 610, Dongcheng District, Beijing Changed registration date CNOOC Plaza, 4 March 2008 No. 25 Chaoyangmen North Avenue, Dongcheng Place of Listing of Shares, District, Beijing Stock Name and Stock Code Business Address Place of Listing of H Share Room 610, CNOOC Plaza, Postal Code: 100010 Hong Kong Exchanges and Clearing No. 25 Chaoyangmen Limited North Avenue, Dongcheng District, Newspapers for disclosure of Stock Code of H Share: 2883 Beijing information Postal Code: 100010 China Securities Journal Place of Listing of A Share Tel: 86-10-84521687 Shanghai Securities News Shanghai Stock Exchange Fax: 86-10-84521325 Securities Times Stock Name of A Share: COSL Website: www.cosl.com.cn Website designated by CSRC on which Stock Code of A Share: 601808 Email: [email protected] the Company’s annual report is posted: www.sse.com.cn Business license registration Hong Kong Office number of corporate legal 65/F, Bank of China Tower, Legal Adviser person: One Garden Road, China: 1000001003612 Central, Hong Kong Jun He Law Offices Tel: (852)2213 2500 China Resources Building, Tax Registration Number Fax: (852)2525 9322 20/F 8 Jiangusmembei Avenue, Beijing 12011871092921X Tel: 86-10-85191300 Fax: 86-10-85191350 Corporate Business Number 71092921X Hong Kong: Sidley Austin Name and Office Address of 39/F Two International Finance Centre, the Company’s Auditor 8 Finance Street, Central, Hong Kong Domestic: Ernst & Young Hua Ming Tel: (852)2509 7888 Address: Level 16, Fax: (852)25093110 Ernst & Young Tower, Oriental Plaza, No. 1 East Chang An Ave., Dongcheng District, The financial statements and the report of auditors set out on pages 93 to 200 of this annual Beijing report have been translated from the statutory financial statements prepared in accordance International: Ernst & Young with CAS. In the event of any differences in interpreting the financial statements, the Address: 18/F, original Chinese version, as disclosed on the website of the Shanghai Stock Exchange (www. Two International finance Centre, sse.com.cn), shall prevail. 8 Finance Street, Central, Hong Kong

Annual Report 2009 275 17. Documents for Inspection

1. Financial statements signed and sealed by authorised representative, person in charge of auditing and person in-charge of audit ﬁ rm.

2. Original copy of auditors’ report (PRC) with seals of audit ﬁ rm and registered accountants.

3. Original copy of auditors’ report (Hong Kong) signed by registered accountants.

4. Original copy of all documents of the Company and Announcements disclosed on the newspaper designated by CSRC during the reporting period.

China Oilﬁ eld Services Limited

Fu Chengyu Chairman 30 March 2010

276 China Oilﬁ eld Services Limited 18. Glossary

2D Seismic data collected in two- HTHP conditions make Semi-submersibles Semi-submersibles do not dimensional form, by utilizing drilling more diffi cult rest on the sea fl oor as jack- a single sound source and one up rigs. Instead, the working or more collection points; ISMC International Safety deck sits atop giant pontoons typically 2D is used to map Management Code and hollow columns. These geographical structures for afloat above the water when initial analysis Jack-up rigs Jack-up rigs are so named the rig moves. At the drill site, because they are self- the crew pumps seawater into 3D Seismic data collected in elevating—with three or four the pontoons and columns three-dimensional from, by movable legs that can be to partially submerge the utilizing two sound sources extended (“jacked”) above rig, hence the name semi- and two or more collection or below the drilling deck, submersible. With much of its points; typically 3D is used to or hull. Jack-ups are towed bulk below the water’s surface, acquire refined seismic data to the drill site with the hull, the semi-submersible becomes and to raise the probability which is actually a water-tight a stable platform for drilling, of successful exploration well barge that fl oats on the water’s moving only slightly with wind drilling surface, lowered to the water and currents. Like jack-ups, level, and the legs extended most semi-submersibles are AWO Awilco Off shore ASA, known above the hull. When the towed to the drill site. Because as COSL Drilling Europe AS rig reaches the drill site, the of their exceptional stability, aft er mergers and acquisitions, crew jacks the legs downward “semis” are well suited for “CDE” through the water and into the drilling in rough waters. sea fl oor (or onto the sea fl oor CDE COSL Drilling Europe AS Semisubmersibles can drill in with mat supported jack-ups). water as deep as 10,000 feet. Th is anchors the rig and holds CDPL COSL Drilling Pan-Pacifi c Ltd Drillships are specially built the drilling deck well above the seagoing vessels that also drill CNA COSL Norwegian AS waves. in water as deep as 10,000 feet. LWD Logging-while-drilling Drilling equipment is installed COSL China Oilfi eld Services Limited on the deck, with the derrick normally placed in the middle Crude oil Crude oil, including LWD Logging-while-drilling; advanced logging tools which of the ship. Th e well is drilled condensate and natural gas through an opening (called a liquids are attached near the drill bit string and measure the “moon pool”) that extends to location of the drill bit and the water’s surface below the Day rate Fixed daily fee charged derrick. with respect to the services nature of adjacent geological structures, typically during the provided by a drilling rig or SMS Safety management system off shore support vessel directional drilling process MWD Measuring-while-drilling Streamers Clear fl exible tubing containing Directional Intentional drilling of a numerous hydrophones used drilling well at a non-vertical or for marine seismic surveys; deviated angle, in order to MWD Measuring-while-drilling; advanced tools which measure streamers are owed behind improve reach or exposure seismic vessels at controlled to petroleum reservoirs; such the pitch and orientation of the drill bit and other factors shallow water depths to collect drilling is especially common seismic data for offshore wells, given the such as weight on the bit and rotary speed of the bit, multiple number of wells Well Services and installation of which may be drilled from a typically during the directional drilling process completion equipment that are necessary single production platform to prepare a well for production, including casing and well DNV Det Norske Veritas OPEC Organization of the Petroleum Exporting Countries treatment, such as acidizing and fracing DOC Document of Compliance PD Premium Drilling AS Well Any work on a completed ELIS Enhanced Logging Imaging workover well designed to maintain, System PSC A production sharing contract off shore China restore or improve production ERSC ELIS Rotary Sidewall Coring from a currently producing Tool PSC partners Foreign parties to PSCs petroleum reservoir, this may include replacement FCT Formation Characteristic Tool QHSE Quality, health, safety of casing and well treatment, environment such as sand control, fracing, FET Formation Evaluation Tool acidizing Seismic data Data recorded in either two- Field A specifi ed area within a block, dimensional (2D) or three- bbl A barrel, which is equivalent to which is designated under a PSC dimensional (3D)form from approximately 158, 988 liters or for development and production sound wave reflections off 0.134 tons of oil (at a API gravity of subsurface geology. This of 33 degrees) HTHP High-temperature and high- data is used to understand pressure downwell conditions, and map geological structures Kw Kilowatts used to measure which typically includes for exploratory purposes offshore supply vessel engine temperatures greater than 200 to predict the location of power capacity, which is degrees Celsius and 10,000psi; undiscovered reserves equivalent to 1,36 horsepower

Annual ReportAnnual 2009 Report 2009 277